Vide a letter addressed to the central public sector enterprises (CPSEs) the department of investment and public asset management (Dipam) under Ministry of Finance has asked (i) enterprises which pay relatively higher dividend (100% or Rs 10/- on a share of Rs 10/-) may consider paying interim dividend every quarter after declaration of quarterly results; (ii) enterprises which pay less than 100% may consider paying interim dividend usually on half-yearly basis; (iii) those which can’t pay as per the prescribed ‘minimum’ should pay interim dividend during October/November each year based on projected profit after tax (PAT) following second quarter (July – September) results. All CPSEs should consider paying at least 90% of projected annual dividend, in one or more installments, as...
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Category: PSU reforms & dis-investment
Checks and balances
Crony capitalism has also happened in public sector banks. There is a dire need to strengthen regulatory oversight to guard against irregularities in running all banks The recommendation of an Internal Working Group (IWG) set up by the Reserve Bank of India (RBI) to allow industrial houses to own banks — if they meet the criterion — has invited strident criticism from experts, including the former RBI Governor Raghuram Rajan. Asking how a borrower could also be a lender, they have debunked the idea, stating that this would lead to misdirected lending, mostly to entities belonging to the industrial house that owns the bank. This apprehension is valid but the misuse of public money can happen in any bank, irrespective of the...
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Banking reforms – can borrower also be a lender
An Internal Working Group (IWG) set up by the Reserve Bank of India (RBI) has made far reaching recommendations in regard to ownership guidelines and governance structures of private sector banks. These include inter alia (i) allowing their promoters hold 26% equity stake in steady state or after 15 years (up from existing norm of 15%) from the start when it should be a minimum of 40% of the equity for the first five years; (ii) take a sympathetic review of whether industrial houses should be allowed to own banks if they meet the fit and proper criterion; (iii) allow non-bank finance companies (NBFCs) with assets of > Rs 50,000 crore, and in operation for over 10 years, to convert...
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Bite the BIC bullet
The ailments afflicting PSBs won’t go away so long as majority ownership and control remain with the Government. There is a dire need to unshackle them and grant autonomy to the management The Reserve Bank of India (RBI) has recommended to the Centre a reduction in shareholding of the latter in six top Public Sector Banks (PSBs), namely the State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Union Bank of India (UBI) and Bank of India (BOI) to 51 per cent in the next 12-18 months. At a recent meeting with the Ministry of Finance (MOF), the RBI had argued for reduction in stake to 26 per cent. But, observing that this might...
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Snap the stranglehold
The only way to avoid delay and expedite the process of privatisation of Central PSUs is to unshackle them from bureaucratic red tape Finance Minister Nirmala Sitharaman has announced the broad contours of the Narendra Modi Government’s plans on privatisation of Central Public Sector Undertakings (CPSUs). A CPSU is defined as an undertaking in which the Union Government has shareholding of more than 50 per cent and by virtue of this, exercises majority ownership and control (there were 249 operating CPSUs as on March 31, 2019). Its privatisation means the shareholding of the Centre will be brought down to below 50 per cent. Before we look at the plan and how the Government goes about implementing it, it may be worthwhile to...
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PSBs – give charge to a holding company
Reportedly, the Reserve Bank of India (RBI) has recommended to the Government of India (GOI) reduction in the shareholding of the latter in six top public sector banks (PSBs) viz. State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Union Bank of India (UBI) and Bank of India (BOI) to 51% in the next 12-18 months. In a recent meeting, the RBI had suggested reduction in GOI stake to 26% in PSBs. But, for now, its recommendation is to cut the stake to 51%. Given its precarious financial position (courtesy, Covid – 19), the union government is exploring all possible avenues for increasing revenue. In this larger perspective, it is looking to monetize its...
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Privatization – unshackle the process
The finance minister, Nirmala Sitharaman has recently announced the broad contours of Modi government’s plans on privatization of the Central public sector undertakings (CPSUs). A CPSU is defined as an undertaking in which the Government of India (GOI) has shareholding of more than 50% and by virtue of this exercises majority ownership and control (currently, there were 249 operating Central PSUs as on March 31, 2019). Its privatization means the shareholding of GOI will be brought down to below 50%. Which of the CPSUs will be privatized? To determine this, the undertakings will be divided in to two broad categories viz. ‘strategic sector’ and ‘non-strategic’. Whereas, all undertakings in the non-strategic sector will be privatized, in the strategic sector too, the...
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A system failure
The bailout given to Yes Bank, using public money, emboldens banks to continue with their game plan. The Govt and the RBI must do everything to give a body blow to this attitude Much before the crisis at the beleaguered Yes Bank reached a flashpoint [when the Reserve Bank of India (RBI) on March 5, 2020, superseded its Board, appointed ex-Chief Finance Officer (CFO) of the State Bank of India (SBI) as its administrator and imposed a moratorium for a month on critical operations such as sanction of fresh loan, renewal of existing loans, Rs 50,000 ceiling on withdrawal of money per account] some depositors had already sensed it coming. They withdrew about Rs 18,000 crore during the first six...
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Fiscal slippage – the denial syndrome
In the Union Budget for 2020-21, Finance Minister, Nirmala Sitharaman revised the fiscal deficit [FD] for 2019-20 to 3.8% of GDP – up from the budget estimate [BE] 3.3%. In absolute term, the RE is Rs 766,500 crore against BE Rs 700,000 crore. Sitharaman has explained away the slippage in terms of recommendation of the NK Singh committee on review of the Fiscal Responsibility and Budget Management [FRBM] Act which permits breach of the target in case of “far reaching structural reforms with unanticipated fiscal implications”. The justification is untenable as during the year, there was no reform measure that can be put in the category of ‘far reaching structural reforms’. The government could slip further even from the revised...
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Not so strategic disinvestment
Unless there is an economic turnaround and the bureaucratic machinery moves with alacrity to make preparations for conducting PSU sales, the Govt will not reach the Rs 2,10,000 crore target Buoyed by the success of disinvestment in Public Sector Undertakings (PSU) during 2017-18 and 2018-19 (when the Centre garnered over Rs 100,000 crore and Rs 85,000 crore respectively), for the current year, the Modi Government had set an ambitious target of getting Rs 1,05,000 crore. A major slice of these proceeds was to come from “strategic disinvestment” or transfer of a sizeable portion of ownership (this could go up to 51 per cent, implying privatisation) and management control to a private entity. The crucial “strategic disinvestment” proposals included divestment of all of...
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