Rangarajan Says To Consider LIC`s Stake In Banks As Govt Holding

Mumbai: C Rangarajan, chairman of the Prime Minister''s Economic Advisory Council, has planned the idea of treating shareholdings of fully state-owned entities like the Life Insurance Corporation (LIC) in public sector banks as government holding. This will assist the public sector banks (PSBs) to mop up much-needed capital without the risk of losing government control. When the PSBs are going to grow rapidly there is required for injection of equity. In this situation, the government will have to make up its mind either to bring in additional capital or move towards reducing its share from 51 per cent via statutory changes.

At present, in PSBs the government cannot decrease stake below 51 per cent. There could be another alternative, which comprises treating entities such as LIC that are quasi-government in nature as part of government which will need amendment in laws. The adoption of Basel II norms make banks look for additional capital. The state-owned banks ability to meet the growing needs will be inhibited, unless the government is willing to bring in more capital.