The Hindu Business Line : No dilution of Govt stake below 51% in PSBs

The Finance Minister, Mr P. Chidambaram, with the RBI Deputy Governor, Mr V. Leeladhar, and the SBI Chairman, Mr A.K. Purwar, during the meeting with the chief executives of public sector banks in the Capital on Friday. - Kamal Narang

New Delhi , June 3

PUBLIC sector banks in which the Government's stake is pegged at a little over 51 per cent, will not be allowed to go in for further public issues to raise capital, the Finance Minister, Mr P. Chidambaram, said here on Friday.

"There would be no further public issues. There are other options for mobilising capital in such cases like Tier II capital," Mr Chidambaram told reporters, after his meeting with the chiefs of public sectors banks.

He was replying to a query on how banks with Government stake of little over 51 per cent could mobilise capital if they were not allowed to lower the Government stake to below 51 per cent.

The Finance Minister's stance will imply that banks such as Dena Bank, Oriental Bank of Commerce and even Vijaya Bank may not be allowed to come up with further public issues to raise capital.

While the Government's stake in Oriental Bank is currently pegged at 51.07 per cent, its holding in Dena Bank and Vijaya Bank is 51.19 per cent and 53.87 per cent, respectively.

There are at least four other banks that are not borderline cases, but where the Government's holding is below 60 per cent. These include Punjab National Bank (57.8 per cent), IDBI Bank (58.48), Corporation Bank (57.17) and Allahabad Bank (55.23).

Mr Chidambaram made it clear that there is no intent on the part of the Government to revive the legislation on reducing the Government equity in banks to 33 per cent.

"The policy of the United Progressive Alliance Government is that, in public sector banks, the Government would hold 51 per cent or more," Mr Chidambaram said.

Banks' MoU in July

Mr Chidambaram also said all public sector banks would sign a memorandum of understanding with the Finance Ministry by the first week of July.

The MoU system, which is already there for central public sector undertakings, will enable the Government to review the performance of public sector banks at the end of the year.

"Today, we have approved the MoU format after consultation with banks. As a majority owner of banks, I will measure them by their performance as against the MoU," Mr Chidambaram said.

The State Bank of India Chairman, Mr A.K. Purwar, later told reporters that the parameters considered for the MoU include return on assets, return on net worth, return on equity, capital adequacy ratio and reduction of non-performing assets etc.

NPA level to be brought down to 2 pc

On net non-performing assets (NPAs), the Finance Minister said the meeting agreed to aim at bringing down the net NPA level to close to 2 per cent by the end of the current year.

Net NPAs stood at 3 per cent as on March 31, 2005.

"We may not achieve 2 per cent, but we will try to take it to as close as 2 per cent as possible," he said.

The Finance Minister also said two banks (including Punjab and Sind Bank), with slightly higher net NPAs, have been separately called to present their plans for reducing their NPAs.

He said that five banks have been asked to submit written proposals on their plan of action to reduce NPAs.

"They are ok. But we want them to do better," he said without naming these five banks.

On convergence in the financial sector, Mr Chidambaram said he had, at the meeting, asked the public sector banks to turn themselves into multi-product financial centres.

"All public sector banks need to become multi-product financial centres. All bank officers must become multi-task workers. Bank products, insurance products, mutual fund products and, in course of time, pension products would be sold through banks. Banks must become financial centres of financial products. This process would gather pace this year too," he said.

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