Govt should dilute stake in PSBs to 33 per cent in next three years: CII

The government should bring down its stake in public sector banks (PSBs) to 33 per cent in the next three years as it plans to recapitalise banks to strengthen NPA-hit lenders, industry body 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. The off-loading of stake may be in the form of preference shares instead of equity shares to maintain the majority voting rights 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,” the industry body said in a statement.

Currently, PSBs are majorly owned by the government with a minimum stake of 58 per cent which has now been relaxed to 52 per cent, it added.

“However, 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.

CII suggested a six-point agenda to the government to further recapitalise the PSBs.