The Hindu Business Line : Controlling PSBs

The Government wants to exercise greater control over public sector banks and is also philosophically against bringing down its stake below 51 per cent. This, however, constrains capital raising options for such banks. The Government should then invest more funds as equity capital in these banks. Fortunately, given the expansion in size of India's balance-sheet, this can be achieved without stretching fiscal resources.

If the Government were to buy stakes equal to 15 per cent in non-SBI nationalised banks, it would involve an outlay of close to Rs 12,000 crore. If this is done over a period of three years, it would add only 0.1 per cent of GDP to fiscal deficit each year. Since non-government shareholders can also invest an equal amount, the funds at the disposal of banks would be substantial and this would allow a meaningful build-up of risk assets. Such measures would also improve the valuation of public sector banks, which, in turn, would reduce the cost of raising equity funds.

Suresh Krishnamurthy

Chennai

Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in

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