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HomeBusinessGovt can sell of some PSUs for strengthening public sector banks

Govt can sell of some PSUs for strengthening public sector banks

In order to strengthen public sector banks (PSBs), government could sell off some PSUs and use the proceeds to make additional investments in state-owned lenders, the Economic Survey said today.

Govt can sell-AVThe government could sell off assets that it no longer wants to hold, such as certain nonfinancial companies, and use the proceeds to make additional investments in the PSBs, said the economic report card of 2015-16, tabled in Parliament by Finance Minister Arun Jaitley.

“This option is reasonably well understood. What is less appreciated is that RBI could do the same. That is to say it could redeploy its capital as well,” it said.

Last year, the government had announced a revamp plan ‘Indradhanush’ to infuse Rs 70,000 crore in state-owned banks over four years, while they will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global banking risk norms Basel III.

As per the blueprint, PSU banks will get Rs 25,000 crore this fiscal and also in the next fiscal. Besides, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.

Referring to the problems in twin balance sheets (TBS) – PSBs and corporate – the Survey said it is one of the most critical short-term challenges confronting the Indian economy.

There is a problem of the “impaired financial positions of the PSBs and some large corporate houses – what we have hitherto characterised as the ‘Balance Sheet Syndrome with Indian characteristics’.”

It is clear that the TBS problem is the major impediment to private investment, and thereby to a full-fledged economic recovery, it said.

“The problems in the banking system have been growing for some time. Stressed assets (nonperforming loans plus restructured assets) have been rising ever since 2010, impinging on capital positions, even as the strictures of Basel III loom ever closer on the horizon,” it said.

Banks have responded by limiting the flow of credit to the real economy so as to conserve capital, while investors have responded by pushing down bank valuations, especially over the past year.

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