1. PSBs stake sale: Centre puts these 8 banks on first list

PSBs stake sale: Centre puts these 8 banks on first list

The government is considering diluting its stake on a priority basis in those banks where its shareholding is above 75%, as it mulls ways to gather resources to boost the capital base of public sector banks (PSBs) struggling with massive bad assets.

By: | Published: October 23, 2017 6:52 AM
PSBs stake sale, sale of PSBs stake, public sector banks, banks in india, Punjab & Sind Bank, United Bank of India, Indian Bank, Bank of Maharashtra, Central Bank of India, Basel III banking rules Govt shareholding above 75% in these PSBs; stake sale to help capital infusion and meet public-float norm. (Image: Reuters)

The government is considering diluting its stake on a priority basis in those banks where its shareholding is above 75%, as it mulls ways to gather resources to boost the capital base of public sector banks (PSBs) struggling with massive bad assets. While market conditions will play a crucial role in the stake sale plan, the government would first like to see its share trimmed below 75% in certain PSBs to achieve the twin goals of raising funds for recapitalisation and complying with the minimum (25%) public-float norm, a senior government official told FE. As of end-September, the government held more than 75% in eight PSBs — United Bank of India, Indian Bank, Bank of Maharashtra, Central Bank of India, Punjab and Sind Bank, Indian Overseas Bank, UCO Bank and Bank Of India. Proceeds of any stake sale in a PSB, however, may not necessarily be used for fresh infusion into that bank. “The government will take a call on eligible candidates for capital infusion, based on the urgency of requirement and other parametres,” said the official. Apart from public offering, the government is contemplating options, including selling stakes to institutions like LIC, to reduce its shareholding.

Importantly, barring Indian Bank and Punjab & Sind Bank, the government’s share in six of these eight PSBs have, in fact, risen this fiscal, thanks to its capital infusion under the Indradhanush plan. It has to reduce its stake to below 75% by August 2018 to comply with the minimum public-float norm. In the long run, though, the government intends to trim its stake in all PSBs to 52%. Also, the government’s shareholding in at least three banks — Syndicate Bank, Corporation Bank and Dena Bank — is between 70% and 75%.

This means any sharp capital infusion into these banks will see the government’s stakes in them inching towards or breaching the critical 75% mark. The government is constrained to consider various options to raise funds, given the gross inadequacy of the allocation of Rs 10,000 crore for capital infusion this fiscal and the constraints of extra budgetary resources in times of uncertain tax collections.

Global rating agency Fitch recently said that India’s public sector banks will require capital infusion of $65 billion to meet all of global Basel III banking rules by March 2019. It said the government has to pump in more than double the Rs 20,000 crore it had decided to inject in FY18 and FY19, even on a bare minimum basis.

The gross bad loans of public sector banks worsened to 11.77% of their gross advances to banks at the end of March from 9.91% a year before. Although credit growth has been muted in recent years, the rise of stressed assets has raised PSBs’ provisioning requirements, making capital infusion by the government so important.

As part of its Indradhanush plan, the government had planned to provide Rs 70,000 crore over a four-year period through 2018-19 (Rs 25,000 crore in each of the first two years and Rs 10,000 crore in each of the last two years) for the capitalisation of the PSBs. As for the public float norm, the government had in 2014 notified rules for a minimum 25% public shareholding in listed state-run companies. The move was aimed at promoting wider investor base in listed public-sector companies and boosting the government’s plan to raise funds from disinvestment.

  1. A
    Apte
    Oct 23, 2017 at 8:02 am
    1. Thousands of crore of Rupees would be required to buy stakes of Union government in these eight public sector banks (PSBs). It is now well-known that these PSBs are in poor financial health. Hence who would come forward to buy stake in these banks, except at a heavy discount, if at all some come forward? One also wishes to know at what price would the government sell shares of these PSBs. 2. of government stake in these PSBs would not solve problems faced by them today. If bureaucratic and ministerial interference continues in these banks, then of stake won’t be of assistance to nurse these banks to health. 3. According full operational autonomy to Boards of these Banks, with accountability standards in place, may perhaps be the first step to make them strong and healthy.
    Reply
    1. K
      Keshav
      Oct 23, 2017 at 6:11 pm
      Well said.Why did the PSBs come to this pass in the first place?Thanks to the Reforms of the 90s and the concept of Universal Banking.The Bank's were doing well with their commercial blending and a little bit of term lending when all of a sudden they were goaded to parti te in long gestation projects.These should have been funded by All-India term lending and development ins utions.Atleast the rot would have been in select ins utions and PSBs would have been in normal health if not in the pink of health.Now we are blaming the Banks as though they went out of their way to embrace all the current NPAs.
      Reply

    Go to Top