Centre may cut stake in public sector banks to 52%

New Delhi: The government is considering reducing its stake in public sector banks to 52 per cent.

Jayant Sinha, minister of state for finance, on Friday told the Lok Sabha the step would substantially reduce the requirement of the budgetary provision for capital infusion in state-owned banks. "The matter is under consideration," he replied when asked whether the Centre proposed to reduce its stake in public sector banks to 52 per cent.

Sinha said the reduction of its share in the equity capital of such banks would fetch the government Rs 89,120 crore on the basis of the share prices as of November 21. The actual amount realised might vary, depending on the prevailing share prices.

Banking stocks reacted positively to the news, with the BSE Bankex rising 2.87 per cent, or 591 points, to close at 21,212 on Thursday. State Bank of India, Punjab National Bank and Bank of Baroda led the gains.

Public sector banks need Rs 2.4 lakh crore in equity by 2018 to meet Basel-III requirements on capital adequacy. However, due to fiscal constraints, the finance ministry has sanctioned only Rs 11,200 crore this year from budgetary resources, asking banks to consider other options for meeting their requirements.

Currently, the government's shareholding in these banks ranges from 55.4 per cent (Bank of Baroda) to 85.3 per cent (Central Bank of India).

At a time when banks are staring at substantial non-performing assets, the capital raised will help them enhance lending to meet the credit requirements of productive sectors of the economy. The finance ministry is preparing a blueprint on capital-raising from the market, as well as other potential resources.

In September, former financial services secretary GS Sandhu had said, "If banks have to raise money from the market, government stake has to come down. That is part of our paper." He had added share sales in banks would be a mix of qualified institutional placements and public placements.

In 2013-14, the government had infused Rs 14,000 crore in these banks. For 2012-13, 2011-12 and 2010-11, the infusion stood at Rs 12,500 crore, Rs 12,000 crore and Rs 20,000 crore, respectively.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.