The finance ministry has taken the first step towards setting up a holding company for public sector banks and will float a cabinet note for this shortly. Most international banks are held by a holding company and in the Indian context; this will help the government with equity infusion.

The idea is to set up one holding company for equity infusion in public sector banks. The government will need close to Rs 1.4 trillion in order to comply with Basel III norms and hence this idea of a holding company had been proposed in the Budget last year.

According to sources, in a day or two a cabinet note to this effect will be floated and the contours are ready. It is learnt that part of the equity of the government in public sector banks will be transferred to this holding company, which will also receive dividends. It can also tap debt markets and even the equity markets to raise capital and then it will infuse equity into various public sector banks.

It will not interfere in the day-to-day functioning or operations of banks, so it will be separate in that sense. However, it will be easier for equity infusion to be done via this holding company than by the government making budgetary allocations every year considering it is already fiscally constrained.