Power PSUs consider foray into banking

State-owned power companies Power Finance Corporation (PFC), Rural Electrification Corporation (REC), NTPC, PowerGrid Corporation and NHPC have banded together to explore the option of entering the banking business in order to access cheaper funds. The PSUs are looking at the possibility of forming a public sector bank. Their exposure to the proposed banking venture is expected to be towards equity.

Simultaneously, REC is exploring the possibility of promoting a bank with a 50 per cent share, with the balance offered to a foreign bank and industrial group with adequate experience in the financial market. REC has already set up an internal committee comprising retired officers of Reserve Bank of India (RBI), State Bank of India (SBI) and Bank of Baroda to prepare a roadmap for the banking foray.

The power PSUs will soon meet to discuss RBI’s plan to issue new banking licences after discussing minimum capital requirements, ownership and foreign shareholding norms with various stakeholders. RBI has already released a discussion paper, seeking the views of stakeholders on these and various other issues.

While PFC and REC are engaged in providing funds for generation, transmission and distribution — both to public and private utilities — NTPC is India’s largest power generator. PowerGrid Corporation is a central transmission utility engaged in laying a national grid. NHPC is a major player in hydro capacity addition.

“We are currently brainstorming (the foray into banking). The heads of power finance PSUs will meet soon to discuss the matter," REC Chairman and Managing Director Jairaj Phatak told reporters here today on the sidelines of a conference on solar energy organised by the Confederation of Indian Industry.

Pathak admitted that if all power PSUs form a bank, it would have to follow all RBI guidelines pertaining to cash reserve ratio, statutory liquidity ratio and priority lending. “This means the proposed bank cannot exclusively lend to the power sector. All these aspects would be studied in detail before taking a final decision,” he noted.

On REC’s initiative to promote a bank, Phatak said the issue was at a discussion level, as the internal committee would come out with a report and only then would REC take a call whether to apply for a banking licence with RBI.