During her second interactive session with the media on the state of the Indian economy and measures to give a boost, finance minister, Nirmala Sitharaman announced a number of bold reforms in the banking sector with major focus on consolidation of 10 public sector banks [PSBs] into 4 big entities – an overarching objective being to make them globally competitive and act as a foundation for achieving US$ 5 trillion milestone. Sitharaman informed about a substantial reduction in their gross non-performing assets [GNPAs] from 11.6% of total loans as on March 31, 2018 to 10.3% on March 31, 2019 [courtesy, huge recovery of over Rs 300,000 crore made possible largely by concerted action under the Insolvency and Bankruptcy Code (IBC)...
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Category: PSU reforms & dis-investment
Disinvestment: half-truths and clever babudom so far
Union Finance Minister Nirmala Sitharaman has set an ambitious target of Rs 1.05 lakh crore as proceeds of disinvestment of government shares in public sector undertakings (PSUs). She has also proposed aggressive pursuit of ‘strategic’ disinvestment by reducing government’s shareholding in PSUs to below 51% on a case-by-case basis. The route to garnering one-third of this target, or Rs 35,000 crore, has been set. This includes proceeds from divestment of Air India, which could not go through last year, courtesy the government’s decision then to retain 24% shareholding with itself (besides other riders such as a three-year lock-in period on disposition of shares by the acquirer) which discouraged prospective bidders. Strategic disinvestment involves transfer of a sizeable portion of ownership and...
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Relinquishing control over PSUs, really!
In her maiden budget presented on July 5, 2019, the union finance minister, Nirmala Sitharaman has set an ambitious target of Rs 105,000 crore as proceeds of disinvestment of government shares in public sector undertakings [PSUs] [this is even higher than about Rs 100,000 crore it had garnered during 2017-18]. She has also hinted at aggressive pursuit of ‘strategic’ disinvestment and even consider reducing governments’ shareholding in PSUs to below 51% on a case-by-case basis. A target of realizing 1/3rd of the proceeds from this route has been set. Over Rs 35,000 crore, the government is contemplating to garner from the ‘strategic’ disinvestment includes proceeds from divestment of Air India which according to the secretary, department of investment and public asset management...
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Ailing BSNL/MTNL – privatization is the way forward
The Bharat Sanchar Nigam Limited [BSNL] – a jewel among the most profitable public sector undertakings [PSUs] of the union government and an entity that virtually monopolized the telecommunication sector over two decades ago – is reported to have sent an SOS to the department of telecommunication [DoT] – its nodal ministry – seeking immediate release of funds to enable it pay salaries to its employees for the month of June, 2019. This has led to consternation in industry circles with many commentators even questioning the very need to continue operations of this highest loss making PSUs [during 2018-19, it posted loss of Rs 13,804 crore] besides Mahanagar Telephone Nigam Limited [MTNL] – another one time jewel in the portfolio...
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Dealing with NPAs – its’ back to business as usual
In December 2016, Modi – government enacted the Insolvency and Bankruptcy Code [IBC] – a robust and impeccable legal framework for recovery of non-performing assets [NPAs] of lenders in a fast track mode. It also amended the Banking Regulation Act [BRA] [2017] arming the Reserve Bank of India [RBI] with powers to give directions to banks for making reference to National Company Law Tribunal [NCLT] for resolution of NPAs under IBC. Pursuant to the above, on February 12, 2018, the RBI issued an order requiring that in respect of accounts with aggregate exposure of the lenders at Rs 2,000 crore and above, as soon as there is a default in the borrower’s account with any lender, all lenders – singly or...
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RBI must expose willful defaulters
In 2015, the Supreme Court [SC] had held that the Reserve Bank of India [RBI] cannot withhold information on defaulters and other issues covered under the RTI [Right to Information] Act under the “guise” of confidence or trust with financial institutions [FIs] and is accountable to provide information sought by general public. The apex court had opined that the banking regulator was duty bound to furnish all information relating to its annual inspection report [AIR] on banks and other material under the RTI Act unless the material is exempted from disclosure under the law. It had also ordered that RBI should take rigid action against those banks and FIs indulging in “disreputable business practices”. Yet, under its “Disclosure Policy” [it...
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PSBs turnaround – make it sustainable
After incurring losses for four consecutive years [2015-16 to 2018-19], public sector banks [PSBs] are expected to post profits in the range of Rs 23,000 – 37,000 crore during 2019-20. Their gross non-performing assets [GNPAs] are slated to decline from 10.3% as on March 2019 to 8.1 – 8.4% by March 2020. The net NPAs [NNPAs] are projected to go down from 5.3-5.4% to 3.5-3.6% during the same period. Four years ago when the NPAs started showing an unprecedented increase compelling the banks to make provision in the balance sheet – as prescribed by the banking regulator viz. Reserve Bank of India [RBI] – and resultant losses, no one would have ever thought that the turnaround would come so soon. Yet,...
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India’s burden of fiscal dilemma
Allocation for welfare schemes have not kept pace with an increase in revenues due to which the Government had to resort to a window dressing of accounts In the interim Budget presented on February 1, the Government reported a minor slippage of 0.1 per cent in fiscal deficit for 2018-19 against the target of 3.3 per cent of the GDP. For 2019-20, the fiscal deficit is pegged at 3.4 per cent. The Finance Ministry has indulged in skullduggery to restrict the deficit to 3.4 per cent, which itself is off the three per cent mark for 2018-19, as per the fiscal consolidation road-map (albeit original). With regard to proceeds from disinvestment of shares in Public Sector Undertakings (PSUs), the Government had set...
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Unshackle banks from credit cycle
The Insolvency and Bankruptcy Code is an important legislation that has instilled a sense of urgency among all stakeholders to resolve bad loans but for the momentum to sustain, India needs a committed leadership Banking is inherently a huge profitable business. To get a sense of it, all one needs to do is to look at the thousands of crores of rupees that a bank receives in various savings account on which it pays a meager 3.5 per cent to 4 per cent interest and earns a minimum of 10 per cent by way of lending. Even on account of funds, it garners by way of term deposits — 6.25 per cent to 7.5 per cent, depending on the period....
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Fiscal consolidation – ‘off-balance sheet’ items save the day
In the Interim Budget presented by the finance minister in-charge, Piyush Goyal on February 1, 2019, the government reported a minor slippage of 0.1% in fiscal deficit [FD] for 2018-19 against the target of 3.3% of GDP [gross domestic product]. For 2019-20 also, the FD has been pegged at 3.4%. Going by the fiscal consolidation road-map which required the centre to reach 3% mark by 2018-19, already, it is behind schedule. Even the manner of achieving the mentioned numbers raises doubts about the credibility of the efforts. In regard to proceeds from disinvestment of shares in public sector undertakings [PSUs], the government had set a target of Rs 80,000 crore for 2018-19. A look at the break-up shows heavy...
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