Govt mulls stake cut in public sector banks to 51-58%

Jun 04 2014, 05:07 IST
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SummaryThe government is considering cutting its stake in all public sector banks (PSBs) to between 51% and 58%, the proceeds from which will be used to recapitalise them

The government is considering cutting its stake in all public sector banks (PSBs) to between 51% and 58%, the proceeds from which will be used to recapitalise them, financial services secretary GS Sandhu said on Tuesday, after meeting heads of major state-owned banks.

“We had asked banks to suggest ways for recapitalisation. Several ways are being suggested, including offloading government equity to between 51% and 58%, bond issues, etc, spinning off of non-core businesses like credit cards, mutual funds, insurance, and the stake that the PSBs may hold in stock exchanges or insurance companies,” Sandhu told reporters after a meeting with heads of State Bank of India, Punjab National Bank, Canara Bank, Bank of India, Bank of Baroda and Union Bank.

While a clearer picture on the timeline for such measures will be decided at a later date, these can certainly help bring down fiscal deficit, as the burden on the government to recapitalise the banks will reduce, Sandhu said. He added that the allocation for Rs 11,200 crore in the FY15 interim Budget was unlikely to increase in the Budget.

In the PSBs where the government holds more than 58% stake, its equity will be offloaded till it reaches 58%. Only in the case of State Bank of India and Punjab National Bank, where the government's stake is already close to 58%, will the stake be brought down till 51% after Cabinet approval, he added.

Sandhu also reiterated that a case for holding companies for banks was being examined and that a Bill will have to be introduced in Parliament

While the secretary did not comment on other issues, officials in the finance ministry said a number of other concerns were also discussed. One of the discussions centered around standard accounts that were under the danger of becoming non-performing assets (NPAs).

Sources said that the prospect of de-leveraging the debt burden of some of the big borrowers was discussed. While the mechanism is yet to be finalised, the banks have been told to identify such big borrowers which are still standard accounts but can turn bad. Such borrowers will be told to access the stock market to raise funds and, hence, reduce the debt burden. If the debt burden increases, some of these big borrowers can turn NPAs, an official familiar with the discussions said, although the person declined to divulge if such companies had been identified yet.

The official added that only those companies which

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