Privatisation policy will now be a road map for PSB mergers: Debasish Panda

The soon-to-be-unveiled privatisation policy for public sector enterprises will lay the road map for mergers and amalgamation among state-owned banks, says Debasish Panda

The soon-to-be-unveiled privatisation policy for public sector enterprises will lay the road map for mergers and amalgamation among state-owned banks, Financial Services Secretary Debasish Panda tells Nikunj Ohri in an interview. The government has received many suggestions on privatising banks or lowering government shareholding in public sector banks (PSBs), he said. Edited excerpts:
 

Will the government focus on having fewer but stronger banks? There have been suggestions on bringing down the government’s stake in PSBs to below 51 per cent…
 

We have received various suggestions, and a decision will be taken at an appropriate time. A larger policy for privatisation has been announced under the Aatmanirbhar Bharat package. Once the policy is finalised, accordingly the roadmap for amalgamation and mergers will be clear. The privatisation policy will lay the roadmap for all PSBs.
 

Gains of amalgamation of PSBs are now visible. All these banks are reporting profits, their asset quality has improved, non-performing assets have gone down, and the provision coverage ratio is more than 80 per cent. Banks have also made provisions anticipating that there could be stress due to Covid-19, but hey are still in profit. We are now seeing robust credit growth. Corporate loans are subdued as they take time to firm up proposals and plans, and I’m sure this space will also pick up.
 

Will NPAs see a sharp jump due to Covid-19? Will the government have to infuse more money in PSBs?
 

A lot of measures have been taken by banks to provide for bad loans if they see a spike due to Covid-19. It’s not that everyone has availed the moratorium. Restructuring of loans will also give comfort to banks. Banks have tapped the markets and raised about Rs 40,000 crore, and we are expecting PSBs to raise another Rs 20,000 crore before the end of the financial year, and this could be even more than what is targeted or projected. However, the government is fully responsive to their capital needs. As of now, we’ve infused capital in Punjab & Sind Bank because the lender needed it.
 

Should corporate houses be allowed to run banks?
 

Let the Reserve Bank mull over the inputs it has received and decide. Once RBI decides, and once it consults the government for any changes in statute, the government will give its formal view.
 

Post Covid-19, what will be the government’s focus in the PSB space?
 

Banks are looking at niche segments that have not been captured. For example, a large number of Jan-Dhan account customers. Banks are working on how they can be tapped into the formal lending network so that they don't go here and there and avail loans at higher interest rates. Such account holders have a particular balance, and there's an inflow of money through channels such as the DBT, that will become a deciding factor if credit can be given to them. This would be done by giving loans under the MUDRA scheme. This would support such account holders and also provide a new business opportunity for banks.
 

The sector’s focus would also be on digital services, credit growth, asset management, fraud control, recovery of bad loans, and covering those who do not come under the formal banking network.
 

When will IDBI Bank stake sale take place? Will LIC reduce its stake along with the government? Has the government found a new buyer?
 

As LIC is also a major shareholder in IDBI Bank, they are also mandated by the insurance regulator to bring down their shareholding. When and what amount LIC will disinvest will be decided by the LIC board.
 

Having said that, LIC may also decide to divest a substantial chunk or they may not. The government will also firm up its proposal. Accordingly, the offer will be taken to the market. The government will look at extracting maximum value from its shareholding. We are working with DIPAM. DIPAM will identify the buyer, and we will make changes to enabling provision in Act, and we are trying to sort those out.
 

When will LIC listing take place? When would legislative amendments in the LIC Act be made?
 

It’s under process. We are making changes in statute, and targeting to move them in the Budget session. Work is also going on to estimate the embedded value of the insurer.
 

What’s been the progress on setting up a developmental finance institution (DFI)?
 

We need a DFI as infra financing needs patient capital, and banks are not the right vehicle for lending for long-term projects that do not generate cash in initial years.
 

Deepening the bond market with regard to infra financing is also a matter of concern but we need to do more to have a robust bond market for infra financing. To provide funding, to enhance the credit rating of projects, a DFI will be in place soon. The DFI will be a catalyst and would fund projects that anybody else does not want to enter because of risks.
 

IFCI is under stress with high NPAs, how does the government plan to revive it?
 

IFCI has certain legacy issues that are still playing out. But it has embedded value. The government is evaluating how to unlock it. A strategic sale of IFCI could be possible. We have to bring the company back on track. The government infusing money every time does not make sense. All options are under consideration.
 

The ECLGS scheme has received a good response by MSMEs. Is the government planning more such initiatives for MSMEs?
 

ECLGS has lent support to more than 8 million MSMEs. Businesses professionals have got covered through the scheme by way of liquidity to restart their operations. This was additional money, easily accessible, at reasonable rates of interest with a one-year moratorium. The transmission was fast and has happened seamlessly, and this guarantee programme has done exceedingly well.
 

We extended the scheme to 26 more stressed sectors and the health care sector for loans up to Rs 500 crore. The government has announced several more schemes for MSMEs like Subordinated Debt scheme and Fund of Funds, and the restructuring window for MSMEs has been extended up to March 31. All of this has come at the opportune time, which will be very useful, given the fact that pandemic has affected these units.