The Hindu Business Line : ‘No plan to raise Govt stake in PSBs’

New Delhi, Nov. 27 The Government has no plans to raise its stake in public sector banks (PSBs) to 74 per cent across the board as it would require large infusion of funds, the Rajya Sabha was informed here today.

The Finance Minister, Mr P. Chidambaram, also told the Upper House that the Government would not bring down its stake in PSBs below 51 per cent.

The Government’s equity holding is currently below 74 per cent in most of the PSBs. It is above 74 per cent only in respect of Bank of Maharashtra (76.77 per cent), Central Bank of India (80.21 per cent), UCO Bank (74.98 per cent), Indian Bank (80 per cent), United Bank of India (100 per cent) and Punjab & Sind Bank (100 per cent).

“Our policy is that we will ensure adequate capital strictly in accordance with Basel-II norms”, Mr Chidambaram said replying to supplementaries in the Rajya Sabha here today.

He highlighted that the previous NDA Ggovernment had announced reducing Government equity in public sector banks to 33 per cent.

“When we came to power, I made it clear that it will not be reduced to below 51 per cent. That stands. We have no proposal to reduce Government equity to below 51 per cent”, he added.

At a conference on global banking, the Chairman of the Economic Advisory Council to the Prime Minister, Dr C. Rangarajan, had suggested that the Government, to ensure rapid growth of PSBs, may have to either bring in additional capital in these banks or reduce its share below 51 per cent through appropriate statutory changes, or include in the definition of the ‘government’ such entities that are quasi-government in nature and are likely to be fully owned or an integral part of the government system in the future.

The Finance Minister, however, made it clear in Rajya Sabha today that there was no proposal under consideration to amend the statutory or other provisions for enabling the Government to bring down its shareholding in the PSBs (other than Associate Banks of SBI where Government has no shareholding) to below 51 per cent.

Mr Chidambaram also said that there was no rush of capital into the banking system and that the flow of capital into banks was strictly regulated by the RBI. He said that there was no uncontrolled inflow (of foreign funds) into the banking sector. The RBI has laid strict guidelines including cap on FII and individual investments at 20 per cent and five per cent respectively, he said.

He however noted that there are large inflows into other sectors, mainly due to increase in export earnings, remittances, FDI, foreign institutional investments and private equity. “All this is of course good if we can absorb and turn it into productive investment.”

If large inflows gave rise to inflationary expectations in the economy, then the RBI would have to make changes in monetary policy, the Minister noted.

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