Sinha panel proposes 26 per cent cap on voting shares for bank capitalisation

The standing committee on finance headed by former finance minister and BJP leader Yashwant Sinha has suggested that state-run banks may be allowed to raise up to 26 per cent private capital, beyond which they may be allowed to issue non-voting shares.

This, according to the parliament committee, will help the PSU banks from accessing the market without the government losing control over them while at the same time helping to promote corporate democracy among the banks.

Raising funds from the market without losing control over banks would help cash-strapped government find resources for boosting capital of PSU banks.

The committee, however, suggested that the Reserve Bank of India (RBI) should put in place strict guidelines even for granting 26 per cent voting rights to shareholders in banks.

The committee has specifically said that even the 26 per cent voting shares should be issued only after proper verification of credentials, source of funds, track record and financial inclusion.

The Planning Commission has approved an additional Rs14,000 crore for capitalisation of PSU banks. But, with a cash-strapped government finding it difficult to meet its routine expenditure as well, public sector banks have now to look at the market for raising capital. Banks, however, have to cap equity issue at 49 per cent, beyond which they are not allowed to access private capital.

The government had, in 2010-11, infused Rs20,157 crore in state-run banks to help them achieve 8 per cent tier-I capital adequacy ratio.