Govt holding in Indian PSU banks!

IBA recently made a representation to the government proposing consolidation of public sector banks as well as dilution of government holding to below 51%. Reduction of government holding to 26% or even 33% it was suggested, would allow the government to be the single largest shareholder though it may lose the right of appointment, which shall rest with the RBI thereafter. Also since RBI rules do not permit any bank to hold more than 5% equity in another, government control would be ensured.

As an alternative, mechanisms such as "Free Carry Equity" or maybe even the "Golden Share" concept maybe used to ensure government control in these banks. The implementation of these mechanisms, if accepted, would require substantial overhaul of rules & regualtions governing the banking sector.

The issue of government stake in PSU's assumes immense significance as the current regulations restricting the government holding in these institutions from falling below 51%, are seriously denting the ability of these banks to raise capital. Inability to raise capital is adversely impacting the expansion plans of these banks, who shall also have to be mindful of the Basel II norms which kick in from March'08 for all those banks with international presence. Also since most banks today have insurance subsidiaries which are in need of immense capital infusion (the 26% cap on foreign holding adding to the woes of the local partners who have to bring in the rest 74%), there is an urgent need to address the way in which they can raise fresh capital.

Thus relaxation of capital raising norms in a manner which takes care of the interests of all the stake holders is an imperative. While stringent regulations resulting in healthy financial institutions is the need of the hour for an economy like India which is on a growth trajectory, the regulators also must ensure that the regulations dont end up being an impediment in the growth path of these institutions.

Offseting Carbon Footprint in India!!!! Bah...!

Recently came across this article in Mint which mentioned of a start up by the name of carbonyatra.com which intends to sell carbon offsets to individuals. The proceeds of the reduction certificates bought from this company will be used to invest in jatropha plantations in Uttarakhand, resulting in a plant in the name of the buyer of the offset. Interesting?

http://www.livemint.com/2007/08/28235844/Save-the-earth-online-offset.html

Well I dont think so!

The company it seems intends to blend capitalistic motives with social ones by capitalising on the guilt we face by driving fuel guzzling vehicles or sitting down in air conditioned buildings day in and day out! But what guilt.....in a country where people dont care to keep the roads clean, have no civic sense, blame the Mumbai Municipal Corporation for flooding every year even whilst they make little effort to dispose of garbage at the place and in the manner its supposed to be disposed - I doubt that such an initiative can work.

Also the business model reminds me of those numerous timber plantation companies that came up in mid 90's and duped unsuspecting investors.....the likes of Golden Forest etc.......individuals who have been even remotely associated with such incidents may like to entirely refrain from this scheme.

The article suggests that it will cost approx Rs5,500 for a family that uses 850kWh of electricity a month and drives 2 medium sized petrol cars, to offset their carbon emissions for a year. Though this seems like a rather miniscule amount when compared to the amount asked for similar schemes in Europe.....yet the ignorance of we Indians when it comes to global warming and the initiatives being taken to contain the effect.....may become a roadblock. Also a vast majority of Indians may not be able to afford this annual expense of Rs5,500.

Thus though the idea is noble....its effectiveness in the Indian context remains doubtful!