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FinMin to use disinvestment funds to bolster banks’ capital

HT Correspondent, Hindustan Times  New Delhi, December 23, 2012
First Published: 22:18 IST(23/12/2012) | Last Updated: 22:20 IST(23/12/2012)

The finance ministry is readying moves to use part of the money it raises by selling stakes in state-owned companies to bolster the capital base of public sector banks and insurance companies.


The government plans to infuse close to Rs.17,000 crore in state-owned banks in 2013-14, to ensure that their capital reserves do not remain uncomfortably close to the minimum stipulated levels over a long period of time.

The capital support is aimed at strengthening the tier I capital of banks. According to regulatory requirements, banks are required to maintain a minimum of 8% tier-I capital, which broadly refers to shareholder equity.

The department of disinvestment has moved a Cabinet note proposing to change the terms of use of disinvestment funds that are parked with the National Investment Fund (NIF), which was set up in 2005 primarily to finance social sector schemes from money raised by divesting equity in state-owned firms

The government proposes to change the terms of the fund from 2013-14. “The fund, if the changes are approved, will be used for subscribing to rights issues of public sector banks and insurance companies, preferential allotment of such companies and recapitalisation of banks,” said sources.

Under the proposed norms, the disinvestment process from 2013-14 will be credited to the existing public account under the NIF. The NIF currently is managed professionally by fund managers including asset management companies of LIC, UTI and SBI .

“The government plans to free fund managers currently managing NIF from these responsibilities,” said sources.

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