Financial Daily from THE HINDU group of publications
Thursday, Feb 17, 2005
Financial Daily from THE HINDU group of publications Thursday, Feb 17, 2005 |
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Financial Policy Money & Banking - Public Sector Banks Markets - Public Offer Govt plans to trim holding in all public sector banks to 51% — Spate of equity offerings on cards
Alok Mukherjee
New Delhi , Feb. 16 THE trickle of fresh equity offerings by public sector banks (PSBs) during the current fiscal could turn into a deluge in the coming financial year. In a move that could well spark off a cloudburst of bank offerings, the Government is considering a proposal to bring down the Centre's holding in the entire pack of state-owned banks to a uniform 51 per cent. In a note on expanding competition in the banking sector, the Finance Ministry has said that reduction of Government holding in PSBs to 51 per cent would be a major signal towards its intent on granting enhanced autonomy to them. "The reduction in the minimum holding of Government in the PSBs to 51 per cent would in itself be a major and clear signal about devolution of autonomy to banks in their functioning. This measure may be expected to improve corporate governance, capital adequacy and promote greater managerial autonomy. It is, therefore, proposed to reduce the shareholding in PSBs by the Central Government to a uniform 51 per cent," the note in its section on `Dilution of equity in public sector banks' has said. However, no concrete decision has been reached on the modalities, or the time frame within which the Government holding would be brought down in all the banks to 51 per cent. The Bank Nationalisation Acts of 1970 and 1980 binds the Government to retain a minimum 51 per cent stake in the nationalised banks. At present, while the Government holds 100 per cent equity in four of the 19 nationalised banks, all the remaining have seen varying degree of dilution of the Centre's holding through public offers. The Government holds the entire equity in Central Bank of India, Punjab and Sind Bank, Indian Bank and United Bank of India. A couple of banks such as Vijaya Bank and Dena Bank have accessed the capital market for a second time and in the process are pulling down the Government holding nearer to the 51 per cent mark. Follow-up equity offerings are also in the pipeline from Allahabad Bank, Punjab National Bank and Oriental Bank of Commerce that would trim the Government holding substantially. The Finance Ministry feels that accessing the capital market would be beneficial for the bank in more ways than one. Besides helping them in meeting the capital adequacy requirements, the Ministry feels that it would also "impose a discipline of its own in terms of performance which would enhance shareholder value and enterprise value. Responsibility would be cast on managements to manage their institutions in a manner which enhances profitability through improvements in productivity and efficiency."
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