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Stake sales in PSU banks only at appropriate valuation, says Jayant Sinha

The need for dilution has arisen as a result of the higher capital required for meeting the Basel-III norms by April 2019 and the pressure on state finances.

twitter-logoPTI | January 3, 2015 | Updated 16:00 IST
Stake sales in PSBs only at apt valuation: Sinha
Picture for representation purpose only. (Source: Reuters)

Government on Saturday made it clear that any decision to undertake a stake sale in public sector banks will be so for an "appropriate valuation".

"It is our responsibility to ensure that if we're going to dilute our stake, which is the stake of the people of India, we'll do it at an appropriate valuation. "We're certainly not going to do it at a valuation that will result in too much dilution for the people of India," Minister of State for Finance Jayant Sinha said on the sidelines of the two-day bankers' conclave at the NIBM in Pune.

He, however, declined to give a timeline for the stake sale even though the Union Cabinet recently decided to reduce the Government stake in the 27 PSBs down till 52 per cent as against the current red line of 56 per cent.

"We're absolutely vigilant on that matter. We completely understand how markets operate, how valuations are set and we'll take all of that into account when we take decisions, when we dilute our stake," Sinha, a former private equity fund manager, said.

In the recently released Financial Stability Report, the Reserve Bank of India (RBI) had flagged concerns over the compressed share prices of the state-run banks.

"Capital raising efforts by PSBs other than the capital infusion by the government, face challenges because of their relatively low equity valuations compared to their private sector peers," it had said.

The need for dilution has arisen as a result of the higher capital required for meeting the Basel-III norms by April 2019 and the pressure on state finances.

The government has a Rs 11,200 crore capital infusion budget for the current fiscal and speculation is on if the government will exceed this given the needs of the banks.

"The government is fully committed to supporting and providing all of our financial institutions, whether they are banks, insurance companies, NBFCs, with the capital that they need to be able to provide the liquidity and the credit to the economy which needs to grow," he said.

The lower credit pick-up this fiscal - the year to date credit growth is at 5.2 per cent - has helped the banks conserve capital.

Sinha exuded confidence that credit offtake will go up in the next few months.

"As the economy turns as the interest rates come down, as they will certainly happen in the next few months, I am very hopeful and I am very sure that credit off-take will increase," he said.

Sinha said he expects a blueprint for reforms to come out from the "unprecedented workshop" of banking industry participants which will be concluding this evening after the presentation of project reports to Prime Minister Narendra Modi.

"We have asked those recommendations to be bold, as I said innovative, and far reaching in their scope," Sinha said, pointing to the six dedicated groups which is deliberating on varied topics like asset quality, HR, leveraging technology etc.

Suggestions from the working groups will be inculcated into policymaking in due course of time, the Minister said.

"We will take them (the recommendations) under consideration and as soon as we can think its practical to implement them, we will certainly do that," he said.

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