Government may use National Investment Fund to recapitalise state-owned banks

The government is likely to consider a proposal tomorrow that seeks to expand the scope of National Investment Fund (NIF) to recapitalise public sector banks and insurance companies.

It is expected that the fund will be brought under the Consolidated Fund of India.

Currently, funds generated from disinvestment of public sector companies go to NIF and are used for financing select social sector schemes and meeting capital investment needs of profitable as well as revivable state firms.

According to sources, the Cabinet will consider aligning NIF operations at its meeting to be held tomorrow. NIF, set up in 2005, is currently managed by three fund managers -- UTI Asset Management Company Ltd, SBI Funds Management Company (Pvt) Ltd and LIC Mutual Fund Asset Management Company Ltd.

As much as 75 per cent of the income from NIF is used to finance selected social sector schemes, while the rest is utilised to meet the capital investment requirements of profitable and revivable central PSU.

However, because of the difficult economic situation caused by global slowdown, the government in November 2009 decided to utilise proceeds from disinvestment only for social sector spending.

This exemption is applicable till March this year.

Since April 2009, disinvestment proceeds are being routed through NIF to be used in full for funding capital expenditure under the social sector programmes such as Mahatma Gandhi National Rural Employment Guarantee Scheme, Indira Awas Yojana and Rajiv Gandhi Gramin Vidyutikaran Yojana.