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Pare stake in PSBs to 33%: CII to govt 

Pare stake in PSBs to 33%: CII to govt 

Context

The Confederation of Indian Industry (CII) urged the Centre to dilute its majority stake in public sector banks (PSBs), from the current threshold of 52% ownership to 33% over the next three years, to complement its ₹2.11 lakh-crore recapitalisation plan for these banks.

Stake in SBI

The Centre could retain a larger share in the State Bank of India to meet priority sector needs and even maintain majority voting rights in other PSBs by diluting its stake through non-voting shares, the industry chamber recommended.

Stakes in other PSBs

  • The minimum government stake in PSBs had been relaxed to 52% from 58%, but the actual holdings in many of these banks is more than 80%
  • Just four banks have a government stake of 58% each as of March this year, the CII noted. “New accounting standards will also be applicable for banks from April 1, 2018.

Increase provisioning requirements

This is likely to increase provisioning requirements on bad loans by as much as 30%, further adding to these banks’ capital requirements,” the CII pointed out, suggesting the Centre could immediately initiate public issues to dilute its stake to 52% in the public sector banks.

Reviving bank growth

The bank recapitalisation programme may revive bank credit growth over the next couple of years and lift the economy from the overhang of NPAs (non-performing assets)

CII Suggestions

  • CII had suggested the Centre set up a holding company for its banking stakes and distance itself from day-to-day management of the PSBs
  • The holding company could be empowered to raise resources and monitor banks’ performance, it said.
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