 "Centre plan to cut PSB stake unlikely to boost efficiency")
The Centre’s plan to reduce its stake in state-run banks could bring ~89,120 crore to its coffers, at current market prices, but that might not make the lenders more efficient, say analysts.
On Tuesday, Finance Minister Arun Jaitley said in Parliament that the government was looking to reduce its stake in state-owned banks to 52 per cent in a phased manner. “A proposal for allowing public-sector banks (PSBs) to raise capital from the market by diluting the government’s holding to up to 52 per cent in a phased manner is under consideration,” Jaitley had said in a written reply to the Rajya Sabha.
A study of the PSBs’ stakeholding patterns shows that at current prices the proceeds will be the highest from sale of a 6.6 per cent stake in State Bank of India, the country’s largest lender. That stake would be worth about Rs 15,706 crore. Other high amounts would come from mid-cap banks — Central Bank of India and Canara Bank. The Centre holds a 84.2-per cent stake in Central Bank and a 69 per cent stake in Canara Bank. A 32 per cent disinvestment in the former would fetch it about Rs 3,664 crore, while a 17 per cent stake sale in the latter would bring Rs 3,125.74 crore.
PSBs need R s2.4 lakh crore in equity by 2018 to meet the Basel-III requirements on capital adequacy. There is no timeline as yet on when the Centre will divest its stakes in these banks.
“Which banks are divested first and which later depends on how well each bank is capitalised. Chances are, the government will sell stakes in the smaller banks first,” said Vaibhav Agarwal, an analyst at Angel Broking.
At a time when banks are staring at substantial non-performing assets (NPAs), the capital raised will help the entities enhance lending to meet the credit requirements of productive sectors. The finance ministry is preparing a blueprint on raising capital from the market and other potential resources.
Replying to another question, Minister of State for Finance Jayant Sinha said public-sector banks’ gross NPAs at the end of September this year were more than Rs 2.43 lakh crore. He also said the amount of NPAs of top 30 was Rs 87,368 crore — 35.9 per cent of total gross NPAs of PSBs.
However, sector watchers believe the banks need to be more accountable to ensure the high level of NPAs is reduced from books, and that can happen only if they are privatised. According to law, government holding in PSBs cannot fall below 51 per cent.
He added that the Centre should go for the offer-for-sale or the follow-on public offering route to divest stake in these banks, instead of going for preferential stake sales to qualified institutional investors.
In September, former financial services secretary G S Sandhu had said: “If banks have to raise money from the market, government stake has to come down. That is part of our paper.”
He added share sales in banks would be a mix of qualified institutional placements and public placements.
In 2013-14, the government had infused Rs 14,000 crore in these banks. For 2012-13, 2011-12 and 2010-11, the infusion stood at Rs 12,500 crore, Rs 12,000 crore and Rs 20,000 crore, respectively. Due to fiscal constraints, the finance ministry has sanctioned only Rs 11,200 crore this year from budgetary resources, asking banks to consider other options for meeting their requirements.
On Tuesday, Finance Minister Arun Jaitley said in Parliament that the government was looking to reduce its stake in state-owned banks to 52 per cent in a phased manner. “A proposal for allowing public-sector banks (PSBs) to raise capital from the market by diluting the government’s holding to up to 52 per cent in a phased manner is under consideration,” Jaitley had said in a written reply to the Rajya Sabha.
A study of the PSBs’ stakeholding patterns shows that at current prices the proceeds will be the highest from sale of a 6.6 per cent stake in State Bank of India, the country’s largest lender. That stake would be worth about Rs 15,706 crore. Other high amounts would come from mid-cap banks — Central Bank of India and Canara Bank. The Centre holds a 84.2-per cent stake in Central Bank and a 69 per cent stake in Canara Bank. A 32 per cent disinvestment in the former would fetch it about Rs 3,664 crore, while a 17 per cent stake sale in the latter would bring Rs 3,125.74 crore.
PSBs need R s2.4 lakh crore in equity by 2018 to meet the Basel-III requirements on capital adequacy. There is no timeline as yet on when the Centre will divest its stakes in these banks.
“Which banks are divested first and which later depends on how well each bank is capitalised. Chances are, the government will sell stakes in the smaller banks first,” said Vaibhav Agarwal, an analyst at Angel Broking.
At a time when banks are staring at substantial non-performing assets (NPAs), the capital raised will help the entities enhance lending to meet the credit requirements of productive sectors. The finance ministry is preparing a blueprint on raising capital from the market and other potential resources.
Replying to another question, Minister of State for Finance Jayant Sinha said public-sector banks’ gross NPAs at the end of September this year were more than Rs 2.43 lakh crore. He also said the amount of NPAs of top 30 was Rs 87,368 crore — 35.9 per cent of total gross NPAs of PSBs.
However, sector watchers believe the banks need to be more accountable to ensure the high level of NPAs is reduced from books, and that can happen only if they are privatised. According to law, government holding in PSBs cannot fall below 51 per cent.
Arun Jaitley
He added that the Centre should go for the offer-for-sale or the follow-on public offering route to divest stake in these banks, instead of going for preferential stake sales to qualified institutional investors.
In September, former financial services secretary G S Sandhu had said: “If banks have to raise money from the market, government stake has to come down. That is part of our paper.”
He added share sales in banks would be a mix of qualified institutional placements and public placements.
In 2013-14, the government had infused Rs 14,000 crore in these banks. For 2012-13, 2011-12 and 2010-11, the infusion stood at Rs 12,500 crore, Rs 12,000 crore and Rs 20,000 crore, respectively. Due to fiscal constraints, the finance ministry has sanctioned only Rs 11,200 crore this year from budgetary resources, asking banks to consider other options for meeting their requirements.