1. Stake dilution in public sector banks after their health improves, says Finance Minister Arun Jaitley

Stake dilution in public sector banks after their health improves, says Finance Minister Arun Jaitley

The government will dilute its stake in state-run banks to 52 per cent once the health of the lenders improve and the money will be used to inject capital in them, Finance Minister Arun Jaitley said today.

By: | Tokyo | Published: May 8, 2017 12:54 PM
The government will dilute its stake in state-run banks to 52 per cent once the health of the lenders improve and the money will be used to inject capital in them, Finance Minister Arun Jaitley said today. (Reuters)

The government will dilute its stake in state-run banks to 52 per cent once the health of the lenders improve and the money will be used to inject capital in them, Finance Minister Arun Jaitley said today. He hoped for a resolution to the burgeoning bad loan problem following the government empowering the Reserve Bank of India (RBI) to order lenders initiate insolvency proceedings against defaulters and create committees to advise banks on recovering non-performing loans. “We already have a programme under which we have been supporting recapitalisation of banks. Where more funds are required from the government, we will be quite willing to look at that. “But once the health of the banks themselves improve, we have also announced that the government will be willing to bring down its own equity in the banks to 52 per cent and that can be used for banks’ recapitalisation,” he said at a CII-Kotak investor roundtable here.

This fiscal, the government has budgeted Rs 10,000 crore of capital infusion in public sector banks.
The amount is lower than Rs 25,000 crore set aside in the previous budget but will be insufficient to help state-run banks raise about Rs 80,000 crore of equity capital that they will require over the next two years to comply with the Basel III norms and support credit growth.

Jaitley said the non-performing assets (NPA) problem is limited to “a certain set of accounts and these numerically are not very large in number but the quantums are high and therefore, they impact the balance sheet of banks”.
“Now, we will wait for the result over the next few months of what we decided (through the ordinance) and ensure that under the empowerment that is being given to the RBI, the banking industry itself goes in for resolution,” he said.

At a separate interactive session on ‘India’s Business Environment: Reforms and Opportunities’ organised by CII, Indian Embassy and Japan Chamber of Commerce, he said that with the new empowerment of RBI, a resolution to the stressed asset problem will be reached. “We were trying over the last few years to address this problem and about three days ago, we have empowered the central bank to take certain precipitative action in relation to resolving the issue of stressed asset itself. I do hope, with this new system in place, resolution of lot of stressed asset in India would take place,” he said.

  1. A
    Apte
    May 8, 2017 at 4:56 pm
    1. It seems that idea of sel a part or entire government stake in public sector banks (PSBs) often comes forward as a solution to get rid of loss-making PSBs. Just last week Deputy Governor of RBI, made a suggestion on similar lines. 2. NDA government and Shri Arun Jaitley have no doubt taken a number of steps to strengthen public sector banks (PSBs). However, what has happened during years of poor governance in last three or four decades cannot be easily undone by PM and Mr. Jaitley. 3. NDA government has set up Banks’ Board Bureau” as a think tank. Idea is that the Bureau would be in a position to improve governance in public sector banks (PSBs). But improving governance in nationalized banks is a very difficult task in the current scenario. 4. Who will buy government stake in PSBs and at what price? Would the buyer get freedom to downsize staff? Who will pay compensation to retrenched employees and officers and take care of their future pensions? These questions need answers.
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