After the recent PNB fall-out worth Rs. 11400 crore, the govt is again planning for a bank-holding company as per a leading business daily report.
So what is the new entity bank-holding company all about
The proposal for Bank-holding company is being mulled upon for better transparency in the banking system as the company is floated to regulate to control one or more banks. The company may or may not necessarily engage in banking activities. So, primarily a concern which exercises control over banks is called a bank-holding company.
In the budget 2012-13, the proposal for a bank holding company came in for the first time, in which the company if then conceived would have held all the centre's share in public sector banks and raise capital for them.
Later, in the budget 2015-16, the idea of a bank-holding company was again given a push with the precursor as the Banks Board Bureau.
Suggestions that earlier favoured the conception of banking holding company
In the earlier time, it was considered to be highly advantageous, as through these institutions a better shield could be provided to the banking sector as they shall also be protected from all possible activities of their NBFC companies which prove to be negative for banking concerns.
There can be a ground of its implementation with the amendments made in the Bank Nationalisation Act (BNA).
Role of Bank-holding company
The company would depending on the provisioning needs of the banking concerns will engage in formulation of a recapitalization plan.
The work of any issuance of recap bonds shall then be taken over by the holding company.
Bank holding company in the international banking context
In the event of sub-prime financial crisis of 2008, several of conventional investment banks and other financial companies including the likes of Morgan Stanley, Citi Group and some others converted to holding companies to better securre funding and liquidity.