Selloff bites the dust

No strategic sales, says FM; Govt holding in banks to stay above 51%.

The United Progressive Alliance government on Monday terminated two moves initiated by the previous National Democratic Alliance regime.

First, the government called off the proposed disinvestment through strategic sales of its stakes in13 profit-making public sector companies.

It then dropped the proposal to reduce the floor on Centre's holding in public sector banks to 33 per cent from 51 per cent. "In keeping with the National Common Minimum Programme guidelines, it has been decided to call off the process of disinvestment through strategic sales of 13 profit-making PSUs," Minister of State for Finance SS Palanimanickam told the Rajya Sabha.

The 13 firms include National Aluminium Company Ltd, Hindustan Petroleum, Engineers India Ltd, Shipping Corporation of India, National Fertilisers Ltd and Rashtriya Chemicals and Fertiliser.

Balmer Lawrie, Hindustan Paper Corporation, State Trading Corporation, National Building Construction Corporation, Engineering Projects India Ltd, Sponge Iron India Ltd, Manganese Ore India Ltd and Rashtriya Chemicals and Fertilisers are the other companies that will not be privatised.

"We have decided not to go in for strategic stake sale in any firm. We do not think strategic sales are transparent.... I believe that strategic sale is no longer the proper approach to adopt. It raises more questions and is not the preferred route," Finance Minister P Chidambaram told reporters later.

He added the Centre was considering the public offer route to sell minority stakes in PSUs. "This is what is being discussed," he said adding that the government would also consider the sale of its residual stake on a case-to-case basis.

"There are sale and purchase agreements, and obligations. We will deal with each case according to the legal obligations contained in that agreement," Chidambaram said.

As per shareholder agreements, the Centre had to sell its remaining stake in Balco and Jessop & Co. There was also a proposal to sell 8 per cent stake in Maruti Udyog Ltd, where the government holds an 18.4 per cent stake, through a public issue.

The UPA's National Common Minimum Programme had talked of putting an end to strategic sales. But the government and the Left parties are divided on whether the NCMP allows the Centre to reduce its shareholding in PSUs through public offers while retaining majority stake and management control.

The Left has also been instrumental in ensuring that the public sector character of 19 nationalised banks was retained. In 2000, the NDA government had introduced Bills to amend the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970 and 1980 to reduce the floor to 33 per cent to enable state-owned banks to raise capital through public issue of shares. This was aimed at meeting the higher capital adequacy norms.

State-owned banks have a comfortable capital adequacy ratio at present, but some are feeling constrained in making moves for faster business growth due to a lack of capital. Government holdings in Oriental Bank of Commerce and Dena Bank have already reached 51 per cent after public issues earlier in the year.

In fact, Dena Bank has approached the Centre for an additional capital of Rs 400 crore to help it meet the provisioning requirements and expand its business.