News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 9 years ago
Rediff.com  » Business » Govt to cut stake in public banks

Govt to cut stake in public banks

By Manoj Kumar
November 28, 2014 17:38 IST
Get Rediff News in your Inbox:

The government plans to raise about Rs 8.91 crore or Rs 891.2 billion by reducing its stakes in state-run banks to 52 per cent, the junior finance minister said on Friday, sending shares of state lenders higher.

The government holds stakes ranging from 56 per cent to 84 per cent in 24 state-run banks that account for 70 per cent of total outstanding loans of about $1 trillion in Asia's third-largest economy.

The state-run lenders are estimated to need as much as $60 billion in capital over the next four years to meet upcoming global regulations and to build a buffer against rising bad loans.  

While the Indian government has traditionally funded the state lenders - to the tune of about $13 billion over the past decade - it is now striving to reduce the capital injections to lower its budget deficit.

Cutting its stakes "would substantially reduce the requirement of budgetary provision for infusion of capital in public sector banks," Jayant Sinha told parliament in a written statement.

Bank shares, which were trading higher before the news as the market bets on an interest rate cut next week, extended gains.

The index of state lenders rose as much as 5.8 per cent to its highest level in more than 3-1/2 years.

Top lender State Bank of India (SBI) rose as much as 5.3 per cent, while second-largest Bank of Baroda jumped 8.3 per cent.

Finance ministry officials say the federal cabinet is expected to take a final decision on the issue of stake sale soon.

A bunch of state lenders including SBI are awaiting the government's approval to sell shares to raise capital.

Analysts say bigger state-run banks have a better chance to raise capital from the market, but remain sceptical of smaller lenders' ability to attract investors.

State-run banks have been burdened by high bad debt levels and corporate governance issues.

A central bank-appointed panel this year recommended the government cut its stake in state lenders to below 50 percent.

Get Rediff News in your Inbox:
Manoj Kumar
Source: REUTERS
© Copyright 2024 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
 

Moneywiz Live!