Sunday, 20 July 2014

Recapitalisation of PSU banks


Finance Minister, Arun Jaitley


Recapitalization of PSU Banks remains high priority says Finance Minister, Arun Jaitley. The Public Sector Banks need 2.4 lakh crores to meet the Basel III obligations. The Central Government is proposing the recapitalization of public sector banks by 2018. This necessarily means diluting the government stake in public sector banks. But the government has made its mind not to bring it down below 51 percent. While the government will continue to have majority share holding, the citizens of India will also get direct share holding in these banks, which currently the hold indirectly.
while the government will continue to have majority shareholding, the citizens of India will also get direct shareholding in these banks, which currently they hold indirectly.

while the government will continue to have majority shareholding, the citizens of India will also get direct shareholding in these banks, which currently they hold indirectly.

while the government will continue to have majority shareholding, the citizens of India will also get direct shareholding in these banks, which currently they hold indirectly.


Here the question arises is it sufficient to raise this huge chunks of money. The answer is a big NO. The share prices of most public sector banks are quite low barring a few exceptions. Selling those shares will not generate 2.4 lakh crores. So what shall be done?

As far as the share prices remain low selling those shares will not be worthy. So steps should be taken to improve the profitability of these banks. Many of the small and medium public sector banks are running under loss. So along with the recapitalization of banks steps must be taken to make them more efficient. 



On the one side the government is making obligations to give 8 lakh crore farm loans at concessional rates and on the other hand it is planning to sell its stake. Such promises will naturally affect the investor sentiments and may affect the share value of public sector banks.


Therefore Public Sector Banks have to be strengthened. The Government should seriously consider merging of Public Sector Banks to establish 6 or 7 banks with sound financial strength and presence all over India to create a healthy competition. This will also help banks to expand their chain of branches and further their financial inclusion objectives. Remember now only 58% of the population has bank accounts.


#Admin

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