New Delhi: The Finance Ministry on Tuesday asked banks to explore the possibility of hiving-off non-core businesses, including insurance and mutual funds, to raise funds to meet Basel III capital adequacy norms.
"There was a meeting of heads of seven large banks where many issues were discussed, including capital raising," Financial Services Secretary G S Sandhu said, without elaborating.
After the meeting, Bank of India Chairperson V R Iyer said there was discussion on monetisation or listing of non-core businesses such as insurance, mutual funds and credit cards to raise capital.
"We also discussed about hiving off non-core business. Different banks are in different leagues. State Bank of India can go for listing its insurance business as it is profitable," she said.
Many other banks cannot list their insurance ventures as they are yet to break even, she added.
According to sources, the possibility of asking some big borrowers to raise funds in the stock market and reduce debt was discussed.
The stock market is quite attractive at the moment and there is a possibility that some listed and non-listed companies that have borrowed heavily earlier can raise funds from the stock market and to that extent, reduce the debt, sources said.
This will help in avoiding further non-performing assets, or bad loans, because some of these borrowers are under stress, sources added.
The Finance Ministry has asked banks to identify such borrowers and encourage them to approach the stock market and raise funds.
These companies can also raise funds through private placement and unlock bank funds.
The Finance Ministry has also asked banks to explore the possibility of raising funds through public offers.
As part of the road map for raising capital over a period of five years to meet Basel III norms, banks can bring down the government's stake to 58 percent, sources said.
While the government has prescribed a minimum stake of 58 percent in state-owned banks, the holding can be brought down to 51 percent on a case-to-case basis with cabinet approval, sources added.
In case State Bank of India and Punjab National Bank go for a public offer, the government's stake would come down to less than 58 percent, the sources added.
During the meeting, it was reiterated that banks should act tough in case of wilful defaulters.
Options including change of management of defaulting companies and financing of acquisition of bad assets by strong companies were discussed.
Besides, the Finance Ministry is also considering having separate statutes to deal with high-value wilful defaulters.
Banks can be allowed to raise funds through long-term instruments to finance infrastructure. According to sources, the government is considering incentives for such instruments and is in talks with the RBI.
