1. PSBs 25 pct public float: FinMin wants deadline extension amidst Rs 2.11 lakh cr recapitalisation move

PSBs 25 pct public float: FinMin wants deadline extension amidst Rs 2.11 lakh cr recapitalisation move

Amid plans for an unprecedented Rs 2.11-lakh-crore capital infusion into public-sector banks (PSBs), the finance ministry intends to approach capital markets regulator Sebi at “an appropriate time” to extend the August 2018 deadline for PSBs to meet the minimum 25% public float norm.

By: | New Delhi | Published: November 15, 2017 7:07 AM
Ultimately, the government wants its shareholding in various PSBs to be pared down to 52%.

Amid plans for an unprecedented Rs 2.11-lakh-crore capital infusion into public-sector banks (PSBs), the finance ministry intends to approach capital markets regulator Sebi at “an appropriate time” to extend the August 2018 deadline for PSBs to meet the minimum 25% public float norm. As of September-end, the government held more than 75% in nine PSBs — United Bank of India, Indian Bank, Bank of Maharashtra, Central Bank of India, Punjab and Sind Bank, Indian Overseas Bank, Uco Bank, Bank Of India and IDBI Bank. Since the planned massive capital infusion will further raise the government’s stake in PSBs, some banks, especially the ones in which its holding is already above 75%, will find it hard to meet the public float norm. In six of these nine banks, the government’s holding is, in fact, above 80%. These banks are being nudged to initiate stake sale on a priority basis. Asked if PSBs will be able to meet the public float norm before the deadline, a senior finance ministry official told FE: “We could approach the regulator at an appropriate time for an extension. While the government is serious about both consolidation and stake sale, these moves will follow recapitalisation. So, the PSBs would, in all fairness, need more time to comply.” However, ultimately, the government wants its shareholding in various PSBs to be pared down to 52%, said the official. Also, given that the consolidation plan is yet to take a concrete shape, clarity on the government’s stake in the merged banking entities will emerge only later.

Although the government has estimated that Rs 58,000 crore of the Rs 2.11 lakh crore meant for capitalisation by the end of 2018-19 will be raised by the PSBs through stake sale, the process of offloading the government stake to the desired level won’t be over by August next year. This is because the government feels with massive recapitalisation and consequent balance sheet clean-up, a more pragmatic and informed decision can be made about consolidation by the respective boards of the PSBs. Also, the valuation of the PSBs will rise following the clean-up and a stake dilution at that point will yield more. According to norms, the government’s stake in public-sector units, including banks, should not be more than 75% by August 2018. Apart from public offer, the government has been contemplating other options, including selling stakes to institutions like LIC, to bring down its shareholding in banks.

In 2014, the government had notified rules for a minimum 25% public shareholding in listed state-run companies. It was aimed at promoting wider investor base in listed state-run companies and boosting the government’s plan to raise funds from disinvestment. Prior to this move, listed PSUs were mandated to have at least a 10% public holding, whereas listed non-PSUs were asked in June 2010 to have at least a 25% public shareholding within three years. Later, extensions were granted to enable the government to lower its stake in PSUs, given the adverse market conditions. What makes the government’s job of trimming its holding in bad loan-encumbered PSBs tough is the regular requirement of massive funds to improve their capital adequacy. Such a move invariably raises the government stake in them.

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