Budget likely to license new banks with paid-up of Rs 10 arba [Exclusive]

ShareSansar, June 4:

The budget for the new fiscal year is expected to license new banks -– bigger than any of the existing commercial banks -- to promote energy and infrastructure development, according to highly placed government sources.

The budget is likely to set the paid-up capital for new banks at up to Rs 10 arba, the sources privy of the development told ShareSansar.

“Though the central bank is of the view that the paid-up capital of Rs 10 arba for the new banks, the finance minister is of the view that Rs 5 arba may be enough as of now,” a source further said.

The government sources, however, clarified that the proposed banks do not fall under the existing A, B,C, or D categories of BFIs, and that separate law will be enacted to materialize them.

“A paid-up of Rs 10 arba is not a big deal if we think about the very logic behind allowing such banks, which are basically aimed at promoting big hydropower and infrastructure projects,” said a high-ranking official. “Remember it takes around Rs 15 crore to develop 1 megawatt of electricity.”

Sources, some of them actively involved in budget preparation, said that modalities of the proposed banks are yet to be finalized, and that the finance ministry is discussing with the key stakeholders possible modalities for such banks.

“The government may allow the private sector to open such banks with foreign investment or strategic partnership as the government is keen to promote private investment in infrastructure sector.  It may also develop some of such banks by itself with the support of multilateral donors such as the World Bank and IFC,” said another source.

Whatever the modality, good news for the market is that such banks are expected to float their Initial Public Offering (IPO) besides helping to accelerate economy growth in the country, which will again have a long-term positive impact on the market.

Insofar as raising the paid-up capital of the existing BFIs are concerned, sources said that as the budget consultative committee and core group of finance minister Dr Ram Sharan Mahat are still deliberating on the matter, the budget may or may not directly address the issue.

“Look this is a very sensitive issue when it comes to the stock market, which the finance minister and his core team will decide only on the eleventh hour,” a highly placed government source added.

But it is clear that the existing commercial banks will soon have to shore up their paid-up as their business and competition grow -- by issuing more and more bonus shares or by seeking merger or acquisition.

No wonder that the bull has finally turned to the banking scrip.