Even as it praised the government’s recently announced recapitalisation plan, industry body CII suggested the government to bring down its holding in most public sector banks (PSBs) to 33 per cent over the next three years to recapitalise banks and strengthen NPA-hit lenders. In the immediate term it advised that the government to go for public issue to dilute its stake to 52 percent.
Coming up with its 6 point agenda to further recapitalise the public sector banks, CII said: “Over the next 2-3 years, the government could consider bringing down its stake in most PSBs to 33 per cent. It could retain a larger share in the State Bank of India in order to meet priority needs.” It, however, said that the off-loading may be in the form of preference shares instead of equity shares as it will ensure that majority voting right stays with the government with nil transference to the investors.
“On a more immediate basis the government may consider going for public issue to dilute its stake to 52 per cent with the 33 per cent being a target over the next 3 years,” CII said.
Currently, PSBs are majorly owned by the government with a minimum stake of 58 per cent even as the minimum government shareholding has been relaxed to 52 per cent.
“Many PSBs have a much higher Government equity holding at over 80 per cent, while only 4 have brought down the share to 58 per cent as of March 2017. New accounting standards will also be applicable for banks from April 1, 2018. This is likely to increase provisioning requirements on bad loans by as much as 30 per cent, further adding to PSBs capital requirements,” said CII in its recommendation.
In October, the government had unveiled an unprecedented Rs 2.11 lakh crore two-year road map for strengthening NPA-hit public sector banks, which includes re-capitalisation bonds, budgetary support, and equity dilution. The capital infusion will be accompanied by reforms to enable the state-owned banks to play major role in the financial system and give a strong push to the job-creating MSME (micro, small & medium enterprise) sector, Finance Minister Arun Jaitley had announced.
While infrastructure sector is a major source of bad assets for PSBs, CII suggested that banks could consider re-financing their infrastructure portfolio through Infrastructure Debt Funds thereby creating investment vehicles where institutional investors such as insurance and pension funds invest and refinance existing debt of infrastructure companies.
Among other suggestions, the industry body also said that banks may consider securitisation of their good and performing loan portfolios and monetise the debt to raise funds to capitalise their books. It also advised the government to consider increasing the amount allocated to the Indradhanush scheme to capitalize PSBs through collected surplus.