Every year, Government of India (GOI) infuses tens of thousands of crores in to public sector banks (PSBs) (Rs 14,000 crores during current year 2013-14) to shore up their capital to meet prudential norms and help them meet requirements of growing business. With ready and fairly cheap access to public funds especially by way of savings and current accounts, banking is potentially a profitable business. This is even after one considers the social obligations on banks to serve remote and backward areas. Yet, profitability of PSBs is much below expectations. PSBs (24 in all where majority ownership is with GOI) together account for about 3/4th of total banking business in India. Yet, their market capitalization (number of shares multiplied by...
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Category: PSU reforms & dis-investment
Sacrificing Coal India (CIL) at fiscal altar
Following a ‘subtle’ diktat from powers that be, the Board of Coal India Limited (CIL) has approved an ‘interim’ dividend of Rs 18,300 crores out of which Rs 16,485 crores will accrue to central Government. Together with dividend distribution tax (DDT) of Rs 3100 crores, the Government would have garnered close to Rs 20,000 crores during current fiscal 2013-14 by way of interim dividend alone. Originally, the Government was contemplating to divest 10% of its shares in CIL to mobilize Rs 20,000 crores which represents 50% of total proceeds from divestment of PSU shares at Rs 40,000 crores. This was scaled down to 5% in view of mounting resistance from various quarters. Intended to generate around Rs 9000 crores, even...
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Milching PSUs for Government profligacy
Faced with huge shortfall in tax revenue and expenditure (especially subsidies) going out of bound, Government is frantically looking for resources to rein in deficit within 4.8% of GDP or Rs 540,000 crores for the current year i.e., 2013-14. It has opened battle lines on several fronts. The steps under serious consideration include a substantial compression in plan expenditure, postponement of subsidy payments and cut in Government procurement etc. Another item on the centre stage is proceeds from dis-investment of Government’s shares in public sector undertakings (PSUs). While, preparing the budget, it had estimated these proceeds to be Rs 40,000 crores. It had also taken credit of Rs 14,000 crores from sale of its residual holding in BALCO & HZL....
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Direct transfer of ‘interest subsidies’ to farmers – a pipedream
A Committee headed by Nachiket Mor, a member of RBI board to draw up a plan for overhauling the Indian banking landscape has recommended that ‘banks must be required to freely price farm loans on the basis of their risk models and any subvention’ And, waivers deemed necessary by Government should be transferred directly to farmers and not through interest subsidies or loan waivers. Farm loans should not be priced below base rate. This recommendation clearly acknowledges that grant of loans to farmers at concessional interest rates or loan waivers distorts credit markets and results in sub-optimum utilization of funds. It also results in reduced availability of funds to other sectors. Besides, cost of credit to non-farm sectors is higher...
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Are Indian banks tottering?
The banking system in India is considered to be a rock solid foundation of its economy. Its ‘strength’ and ‘resilience’ was tested during the global financial crisis of 2008 when India survived the mayhem that gripped most parts of the world. However, a glance through the latest Financial Stability Report (FSR) would make us believe that cracks have started developing in this foundation. The Rs 81 lakh crores (US$ 1.3 trillion) banking industry is facing heightened risk. Gross non-performing assets (NPA) – a euphemism for bad loans – of 40 listed banks increased 37% to Rs 229,000 crores (US$ 37 billion) during the second quarter ending September, 2013. Besides, banks have restructured loans worth Rs 400,000 crores (US$ 64 billion)....
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