Public sector banks, including State Bank of India (SBI), have advised the government against stake sale in the Central Public Sector Enterprises in the current market conditions.
Banks told the finance ministry that a share sale would not fetch the right valuation now, and the government should look at other options to raise revenues for meeting the fiscal deficit target.
A day after the Cabinet postponed a decision on an extended disinvestment strategy to include various options, including bulk deals and buybacks, the finance ministry held extensive consultations at various levels. Finance Minister Pranab Mukherjee held a meeting with his top officials (who included Disinvestment Secretary Mohammad Haleem Khan), while Department of Economic Affairs Secretary R Gopalan held consultations with chiefs of public sector banks.
The ministry asked banks about the moves government should make to expedite disinvestment and minimise slippages on the fiscal deficit front.
On their part, the banks sought time from the finance ministry over its proposal permitting them to go for bulk purchase of government stake in central public sector enterprises (CPSEs). A senior official of one of the banks said the banks were — as of now — averse to putting money in the disinvestment process.
Also discussed was the proposed dissolution of the Specified Undertaking of UTI (Suuti) and subsequent formation of a company for buying and selling shares. On this, the banks are supposed to provide money to a new company for buying CPSE shares after getting the shares available with Suuti pledged with them.
A finance ministry official said banks wanted more time to think about the proposals. “There are some challenges,” he told Business Standard. “Banks said they are facing regulatory issues. It was just a brainstorming session. They will come back to us.”
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These meetings followed the finance minister’s deliberations immediately after yesterday’s cabinet meeting with Finance Secretary R S Gujral, Gopalan and Khan. The meeting was also attended by Planning Commission deputy chairman Montek Singh Ahluwalia.
Ministry officials said their idea was to take the disinvestment strategy to the Cabinet again after consultations with the stakeholders.
The Cabinet had yesterday postponed a decision on the disinvestment strategy, as several administrative ministries wanted more discussion, and said they had no cash to spare for buyback of shares — an option proposed by the department of disinvestment.