The finance ministry is likely to put out a note soon, detailing its road map to capitalise state-run lenders while explicitly stating the government’s intent to maintain control over public sector banks with at least 52% stake.
This marks a shift from the previous UPA government’s decision to keep 58% shareholding in state-run banks. It is in keeping with the Narendra Modi-led government’s stand articulated in the Budget 2014-15 that it would encourage banks to raise capital from the market.
The government will push banks this way to the point of its own stake falling to 52%, to reduce reliance on the budget.
It has set aside only Rs 11,200 crore for bank capitalisation this fiscal.
All options will be explored to raise capital for state-run banks, a senior government official said, adding that while the government could retain majority control with a 51% stake the finance ministry is keen to retain some cushion with an extra percentage of equity.
“It has been decided to keep 1% extra as a buffer which can be diluted if there are any urgent capital requirements,” the official said. The government is also open to banks raising money through qualified institutional placement (QIP) offerings, the official added.
Finance minister Arun Jaitley had, in his maiden budget speech, said the government would continue with majority shareholding in banks while increasing public ownership. “While preserving public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner,” Jaitley had said, adding that sales of shares would be largely through retail to common citizens of the country. According to ministry’s estimates, state-run banks require Rs 2.4 lakh crore as equity by 2018 to meet Basel III capital adequacy norms, making the government’s allocation for bank capitalisation during the fiscal look paltry.
Financial services secretary GS Sandhu had, last week, said stake dilution in public sector banks was more likely to happen in tranches based on the requirement of funds. “We will go to the Cabinet. We will take a nod from them,“ he had said.
According to a finance ministry official, banks have been told to improve their balance sheets before going to the markets. “We will like to improve the market-to-book value ratio, which is less than 1 in most PSBs. Then the bad loans have to go down, and improved CASA ra tio will be a other perquisites,” he said.
Public issues of state-run banks are most likely to start in November, Sandhu had said, adding, “It will be a combination of follow-on public offers (FPO) and, in some cases, QIP.”
The finance ministry will also prod state-run banks to hive off their noncore business, such as insurance, or get them listed to raise resources. “Once approved, this will also clear the way for larger banks to come out with their public offers,“ the ministry official said.
State Bank of India, the country’s largest bank, is already in talks with the finance ministry to raise Rs 25,000 crore over the next two years. The bank has estimated Rs 32,831 crore as total capital requirement under Basel III norms for all subsidiary banks from 2014-15 to 2018-19.
(Source: The Economic Times, August 6, 2014)
GOVERNMENT PLANS ARC-LIKE COMPANY TO REVIVE OR SELL SICK PUBLIC SECTOR UNITS
NEW DELHI: The government plans to set up a company on the lines of an asset reconstruction firm that will have the mandate to revive or sell sick state-run enterprises.
A senior official told ET that the company will be funded by cash surplus public sector units. “The new approach will weed out those companies which are not financially viable,” the official said.
“The rest can be taken by these PSUs as per the strategic advantages these sick companies may have to offer.” The heavy industry ministry is of the view that an independent firm will be better equipped to assess the viability of a company.
“So, if it is decided that a particular company is not fit for revival, its administrative ministry may take a call to keep it or go for any form of stake sale,” a ministry official said.
According to government data, there were 61 sick public sector companies at the end of March 2013. About 50 central public sector enterprises (CPSEs), including Air India, BSNL, MTNL and ITI, have been making losses for the past three fiscals.
“The new company can be funded by maharatnas and other PSUs. It will have the mandate to manage financial, legal and administrative aspects of the sick company,” said the official cited first. The head of a state-run firm said the proposed firm can work like an asset reconstruction company and look at various measures to revive the sick unit.
“If needed, it can also recommend outright stake sale after exploring all options,” he added. The government has identified seven sick firms—HMT Bearings Ltd, Richardson & Cruddas Ltd, Tungabhadra Steel Products Ltd, HMT Machine Tools Ltd, Tyre Corporation of India Ltd, Central Inland Water Transport Corporation Ltd and Hoogly Dock & Port Engineers Ltd — for revival through disinvestment or joint venture.
A committee under NTPC chairman Arup Roy Choudhury has now been set up look at the formation of such a firm, which will have representatives from other PSU companies.
“The committee can also rope in experts, its basic aim is to examine the feasibility of setting up this firm funded by seed equity from cash surplus firms,” said the heavy industry ministry official.
The panel will identify alternative sources of raising capital for the proposed firm and recommend its organisational structure. “It will submit its report within two months,” the official said.
Earlier, heavy industry and public enterprises minister Anant Geete had said that he will work towards reviving sick public sector enterprises. “There are many sick PSUs I have discussed with PM. We will make efforts to revive sick units,” he had said.
UD Choubey, director-general of SCOPE, the apex body of central government-owned units, said revival of sick PSUs is paramount. “We can explore the possibilities through this route,” he added.
(Source: The Economic Times, August 6, 2014)
GOVERNMENT PLANNING TO CLIP NATIONAL GREEN TRIBUNAL’S WINGS
NEW DELHI: The Ministry of Environment & Forests (MoEF) plans to amend the National Green Tribunal Act, which was passed during the United Progressive Alliance (UPA) regime. The move will result in dilution of the powers of the body. According to sources, preliminary discussions for amending the law have begun.
The National Green Tribunal (NBT) is the only judicial body below the Supreme Court before which cases related to environment and forests can be filed. NBT is also the first recourse anybody except the project proponent has to be heard on any environmental and forest clearances. The clearance processes, handled by the ministry’s statutory advisory bodies, do not have a fixed process of engaging with other stakeholders directly. The NGT hears all first challenges to environmental and forest clearances. Its orders can be appealed against in the Supreme Court.
Ever since its inception, the tribunal has had trouble with MoEF on various counts – to begin with, even on providing the infrastructure needed to run it. The Supreme Court had to step in and force the government to act when some judicial members of the tribunal resigned.
The NGT is chaired by a retired Supreme Court justice or a high court chief justice. It is required to have 10-20 judicial members and 10-20 expert members on board with benches operating across the country. The full strength of the benches has not been established till date.
According to a highly-placed source in the ministry, the preliminary discussions on amending the Act have been held and the government is considering setting up a committee to review the law.
Another senior official in the ministry said the move follows deliberations at the highest level in the government.
Environment minister Prakash Javadekar did not respond to queries for the story. While Union environment secretary V Rajagopalan confirmed the move, he told Business Standard the matter was still at an early-discussion stage.
One of the ideas proposed in the discussions was to look at turning the existing judicial tribunal into an administrative one under the ministry itself. In one of the recent cases, the Union government and the petitioners questioned the NGT’s powers to question the correctness of environmental rules and regulations. Under the NGT law, the tribunal has jurisdiction over “all civil cases where a substantial question relating to environment is involved”, which arise out of the implementation of laws under its purview. The NGT overruled them, but the government is considering appealing the judgment before the Supreme Court.
On several occasions in the past two years, the tribunal has hauled up several environment ministry officials, as well as state authorities, for falling foul of law. In a recent judgment, the tribunal even criticised the environment minister for non-application of mind in a case. However, only in rare cases has the NGT sent the project clearance back for re-appraisal or suspended it.
In another recent judgment, the NGT had held it illegal to hire the services of retired bureaucrats as chairs of the statutory expert appraisal committees that review projects for environmental clearances. It had also forced the government’s hand earlier in implementing the Western Ghat reports restricting polluting industries in the hill reaches of biodiversity-rich areas.
(Source: Business Standard, August 6, 2014)
GOVERNMENT TO DISCUSS RAILWAY, DEFENCE FDI TODAY
NEW DELHI: The union cabinet will likely take up a proposal to liberalise foreign direct investment regime for defence and Railways on Wednesday.
The foreign investment limit in railways is proposed to be raised to up to 100 per cent while that in the defence sector will go up to 49 per cent from 26 per cent allowed presently.
“Both FDI proposals, for railways and defence will be taken up by the Cabinet on Wednesday. All security related concerns raised by home affairs ministry have been addressed adequately,” said a government official.
In case of defence, the proposals will go to the foreign investment promotion board (FIPB) and for security clearance to the ministry of home affairs, which has said it will give clearance within three months, the official added.
The two-month-old Narendra Modi government has been pushing reforms to boost manufacturing in and also attract funds to build country’s infrastructure. The new government is keen to liberalise FDI in most sectors barring the multibrand retail sector.
The FDI in railways proposal seeks to allow 100 per cent FDI in railway infrastructure such as electrification, signaling, high-speed tracks, suburban corridors and projects to provide connectivity to ports and mines.
Through the Special Purpose Vehicle route 100 per cent FDI will be allowed to provide last-mile connectivity to ports and mines. The cabinet note talks about partially opening up railway operations to foreign investment in areas like public private partnership (PPP) projects, for suburban corridors, high speed train systems, and dedicated freight lines.
Cash starved Railways has been unable to complete projects. Estimates suggest that the opening of railways to foreign investors will add 1-1.5 percentage points to the overall GDP growth. China and Japan are keen to invest in the railways sector.
FDI proposals in the railways will not have to go to the FIPB since the sector is recommended for the automatic route. Railways transport will be removed from the list of prohibited sectors in the consolidated FDI policy.
The FDI limit in defence has been proposed to be raised to up to 49 per cent to address large imports by indigenising defence production. India is one of the largest defence importers in the world. At present, FDI up to 26 per cent is allowed in the defence sector through approval route.
However, proposals entailing higher FDI, including 100 per cent, can be allowed on a case-to-case basis by the Cabinet Committee on Security (CCS). The defence sector attracted just under $5 million FDI since the sector opened in 2001.
DIPP had earlier floated a draft cabinet note to allow 100 per cent FDI in defence under three different capsup to 49 per cent without technology transfer, up to 74 per cent with technology transfer and up to 100 per cent in case of state of the art technology.
But the proposal drew flak from various quarters including the Indian industry over security-related concerns. Considering political considerations, finance minister Arun Jaitley limited the hike in FDI in defence to 49 per cent from 26 per cent allowed presently.
(Source: The Economic Times, August 6, 2014)