Government Plans to Reduce Stake in PSU Banks to 52%: Sources

The government is planning to reduce stake in the public sector banks to 52 per cent, sources told NDTV. The Cabinet is likely to take up the issue next month, the sources added.

The move could help PSU banks to raise capital to meet the Basel-III norms.

The government is also planning to seek an additional Rs 11,000 crore for public sector banks, apart from the budgeted Rs 11,200 crore, sources said.

Public sector banks require equity capital of Rs. 2.4 lakh crore by 2018 to meet Basel III norms. For the current fiscal, the government has allocated Rs. 11,200 crore for bank capitalisation.

The PJ Nayak committee appointed by the Reserve Bank of India to review the governance of banks in India had recommended reduction of government's stake to 51 per cent in PSU banks. However, the government wants to hold an additional 1 per cent stake as a matter of cushion to protect its shareholding above 51 per cent, sources said.

Finance Minister Arun Jaitley in August said that said bad loans in the banking system rose to Rs 2,45,809 crore in 2013-14, as slower economic growth hurt companies' ability to repay loans on time. Indian economy grew less than 5 per cent in each of the previous two years, in its worst slowdown in decades.

In comparison, bad loans were at Rs 1,83,854 crore in 2012-13 and Rs 1,37,102 crore in 2011-12.

Many institutions have raised the issue of bad assets, particularly in public sector banks. The World Bank recently voiced concern over the bad assets at Indian banks. Moody's Investor Services also had also called for strengthened capital buffers in view of poor asset quality of Indian banks.

The PSU banks, especially the mid-tier banks, are in a particularly difficult position due to their high share of stressed assets and weak capital and earnings positions, Fitch said.

(With Agency Inputs)