Govt mulls reducing stake in PSBs to 52%

Expects to mobilise Rs 89,000 crore

The government is looking at bringing down its stake in public sector banks to 52% and the proposed move may help raise about Rs 89,000 crore from the markets.

Minister of State for Finance Jayant Sinha today told the Lok Sabha that the step would substantially reduce the requirement of budgetary provision for infusion of capital in state-owned banks.

"The matter is under consideration," he said in reply to a question on whether the government proposed to bring down its stake in PSBs to 52%.

Sinha added the reduction of its share in equity capital of PSBs would enable mobilization of about Rs 89,120 crore on the basis of market prices as on November 21. The actual amount realised may vary on the basis of share price prevailing at the material time.

Banking stocks reacted positively to the news, with the BSE Bankex rising 2.87% or 591 points to close at 21,212 today. State Bank of India, Punjab National Bank, and Bank of Baroda led the gains.

PSBs need Rs 2.4 lakh crore in equity by 2018 to meet Basel-III requirements on capital adequacy. But due to fiscal constraints the finance ministry has sanctioned only Rs 11,200 crore this year from Budgetary resources, while asking the banks to look at other options for meeting their requirements.

At present the government's shareholding in PSBs ranges from 55.4% in Bank of Baroda to 85.3% in Central Bank of India. The government will continue to be the majority shareholder in PSBs. As per the existing law, government holding in PSBs cannot fall below 51%.

At a time when banks are staring at a huge piling of non-performing assets, the capital raised will help them in further lending to meet the credit requirement of productive sectors of the economy. The ministry is preparing a blueprint on raising capital from the market and from other potential resources.

In September former Financial Services Secretary GS Sandhu had said "if banks have to raise money from market then the government stake has to come down. That is part of our paper." He added the instrument for share sales in banks will be partly qualified institutional placement and partly public.

The government had infused Rs 14,000 crore, Rs 12,500 crore, Rs 12,000 crore and Rs 20,000 crore in 2013-14, 2012-13, 2011-12 and 2010-11, respectively.