The larger question is whether the government would continue with the sovereign guarantee which comes with full ownership. If it does, there would be questions on corporate governance. And, with listing, the government cannot fund various organisations like they have done so far with LIC, notes corporate lawyer Ashvin Parekh. “This (listing) is being talked about since 2005. The government was then concerned because LIC had issued a lot of guaranteed return products and there were doubts about its solvency. At that point, LIC had capital of Rs 5 crore and the government clarified that all the liabilities of the products issued by LIC had a sovereign guarantee. As of now, LIC has capital of Rs 200 crore,” Parekh said.
The government will also infuse Rs 6,950 crore for recapitalisation of the insurance companies it owns, to meet regulatory requirements. It has begun to consolidate the three state-owned non-life insurance companies and later list this consolidated entity. On bank recapitalisation, the minister noted what had been done over recent years to strengthen the system; there is a need now for more private capital, she said. Accordingly, it is proposed to sell the balance holding of the government in IDBI Bank
to private, retail and institutional investors. Though there is no specific outlay for capital infusion in public sector banks, support would be extended if required, she added. To address liquidity constraints at non-banking finance companies (NBFCs) and housing finance companies, a mechanism will be devised, by guaranteeing securities floated for this purpose. After the previous Union Budget, it had formulated a partial credit guarantee scheme for NBFCs. The limit for NBFCs to be eligible for debt recovery under the SARFAESI Act of 2002 is proposed to be reduced from Rs 500 crore to asset size of Rs 100 crore or the loan size from the existing Rs 1 crore to Rs 5 million.
To strengthen cooperative banks, changes are proposed to the Banking Regulation Act, for more professionalism, enabling access to capital and improving governance and oversight.