Lowering govt stake in PSBs may hit fund-raising plans

Should the government decide to bring down its holding in the public sector banks to less than 51%, it might hurt their capital-raising plans. NS Venkatesh, the executive director and head of treasury at IDBI Bank, said on Tuesday the PSBs will be breaching international covenants if the government stake falls below 51%.

Lenders, he observed, had given loans on the basis of the ownership pattern. ?A change in the ownership pattern might make it difficult for them to raise more capital,? said Venkatesh at a panel discussion at the State Bank of India?s banking conclave. The government is yet to take a decision whether it intends to lower its shareholding in public sector banks to 51%, although it has been selling stakes in some banks.

SK Jain, the chairman and managing director of Syndicate Bank, said the overseas fund raising under medium term note programmes might run into trouble. ?In all the MTM issues of banks, normally there is a stipulation that government holding in public sector banks will not fall below 51%. If the 51% level is breached then banks have to return the amount that has been raised,? Jain said.

He also said the government will not immediately reduce holding in PSBs and that going forward, lenders will change the stipulations while raising money abroad if government holding falls below 51%.

Currently, State Bank of Mysore, Central Bank of India and United Bank of India has the highest government holding with 90%, 88.63% and 88%, respectively. Last week, IDBI Bank, Indian Overseas Bank and Bank of India had announced their plans to raise equity capital via qualified institutional placement which will dilute the government?s holding in them. Central Bank of India, on other hand, said it is looking to raise equity capital by allotting over seven crore shares on a preferential basis with Life Insurance Corporation of India.

The RBI committee headed by former Axis Bank chairman PJ Nayak had in its report suggested the state-owned banks need to be privatised or the government holding in them be reduced to less than or just above 50% to improve governance in public sector banks.