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PMO proposes Gujarat model: Central PSUs park surplus funds in one firm

In fiscal year 2015-16, reserves and surplus of all CPSEs stood at Rs 7.96 lakh crore most of which is parked in banks and mutual funds.

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Borrowing from the Gujarat model, the Prime Minister’s Office wants that all Central public sector enterprises (CPSEs), including Maharatnas, park their surplus funds with a government-owned non-banking financial company (NBFC) from whom they would borrow to finance their investment projects.

Last month, a core group comprising Chairman Airports Authority of India, Director (Finance) of Power Finance Corp and Steel Authority of India Ltd and Financial Advisor in the Ministry of Corporate Affairs was formed to prepare a concept note for propping an NBFC on the lines of Gujarat State Financial Services (GSFS).

The other option, says the minutes of the October 24 meeting, was to consider permitting existing NBFCs like Power Finance Corp, India Railway Finance Corp and Rural Electrification Corp of “undertaking similar activity on the lines of GSFS”.

GSFS officials, who also attended the meeting, were asked to prepare a format to capture fund utilization details and short term borrowing requirements of the CPSEs following which the core group would utilize the data to prepare a concept note for the Department of Public Enterprises.

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In any case, the NBFC would have to be registered with the Reserve Bank of India under the category of Non-Deposit taking – Systematically Important (ND-SI) which would only indulge in CPSE money without accepting any public deposit. And it would be under the overall control and supervision of the Finance Ministry as in the case of GSFS which behaves like the “extended financial arm of the Finance Department”.

GSFS said that the Gujarat government had benefited through this model in terms of “ensuring better financial discipline and meeting the requirements of short-term borrowings and better utilisation of surplus funds of state PSEs and undertakings”.

The Centre has taken a dim view of CPSEs paying less dividend and/or not buying back government-held shares — measures that would feed the national exchequer. Last September, the PMO desired that CPSEs invest their surplus funds “on the pattern of Gujarat where all funds of the state public sector enterprises are parked with GSFS and loan to state PSEs is given by GSFS on the guarantee of the state government”. If approved, this would have implications for public sector banks, mainly State Bank of India, with whom CPSEs park their surplus.

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That is because the GSFS has proposed that a government resolution be issued directing all CPSEs, including boards/corporations and other government entities, to deploy their surplus – defined as any operating surplus in the form of cash in current account with the a bank that is required at a future date, even after one day, for enterprise expenses.

In fiscal year 2015-16, reserves and surplus of all CPSEs stood at Rs 7.96 lakh crore most of which is parked in banks and mutual funds.

First published on: 30-11-2017 at 01:45:25 am
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