The Hindu Business Line : Govt equity buyback

This is with reference to "PSBs press Govt for equity buy back" (Business Line, January 22). As the requirement under the New Basel accord can be met by the PSBs and the BIS has not made any changes to the existing rate of requirement under Tier I capital, the Government decision to put on hold the buyback of equities from banks can be reconsidered.

As the expense for raising Tier II capital by way of bonds is limited to nearly 6 per cent against the huge dividend pay outs in regard to Tier I capital, the PSBs may prefer to resort to Tier II capital, which can go up to 45 per cent of the total capital.

The most important and relevant part of the issue that low dividend payments can lead to lowering of lending rates should receive priority attention by the Government for serious review of the matter. The Centre may also benefit from the appreciation of the share value if the shares are sold back to retail investors at the market value at the appropriate timing. As most of the PSB shares are undervalued, and the correction in the EPS will contribute much to further appreciations, the Centre stands benefited through buy back and eventual sale through market.

C. P. Velayudhan Nair

Kochi

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