Kerala, banks clash; PSUs told to withdraw funds

When banking circles argue the immediate victims of the government directive would be the ailing state public sector undertakings, the management of the public sector lends credence, fearing that the directive could well boomerang on the State.

Banking circles say that most of the state undertakings have been sick and therefore are at the mercy of banks. Even the undertakings functioning well are dependent on banks for expansion and diversification.

The chief executives of the PSUs have been asked to file a compliance report to the State Finance Department within a month. The state government nominees on the board of directors of these undertakings have also been directed to ensure that the ban on deposits in banks is carried out. They have been asked to monitor this closely and report to the government in the event of any lapse by any state enterprise.

Significantly, the circular also warns that for any lapse, the chief executive of the undertaking concerned will be personally held responsible and that the erring undertaking would stand to lose state government aid by way of share contribution, loan or grant. An official statement about the circular was also issued here on Wednesday. Already there is the charge that banks have not been very positive to the State’s development needs. With the State Government now taking a negative attitude towards the banking sector, the scenario in the days to come could be further bleak, bankers feel.

Banks have stakes in almost all state undertakings. For any fund-raising, these units have to depend on banks. Financial institutions extend only term loans and for all working capital requirements, the banks have to be approached. A major problem faced by State PSUs is shortage of working capital.

The State Government is not in a position to pump in funds for the revival of PSUs. It is not just future funding, but also day-to-day functioning of the state enterprises that could be affected once the reserve funds are withdrawn from banks and deposited in the government treasury, pointed out a public sector manager. Treasury does not go for clearing. Its clearing function is done by the State Bank of Travancore. Once the PSUs started operating through treasuries, it would cause long delay in transactions, he added.

However, PSU chiefs will have to carry out the directive, come what may, because the government circular clearly states that depositing reserve funds in banks is against the policy of the government.

A top official of the State Finance Department contended that the circular would in no way affect the public sector. "A directive was already there. We were only reiterating it by the fresh circular," he added. He argued that withdrawal of deposits from the banks would not tell upon the bank ability of the state enterprises.