Govt may ask PSU banks to dilute stake in non-core sectors as PC to meet PSU bank chiefs for the last time on March 5

FM Chidambaram

IT will be his last meeting as finance minister under the present government with the heads of public sector banks. P Chidambaram will be meeting the heads of PSU banks on March 5 to take stock of their non-performing assets, credit growth and financial performance.

The agenda is clear: reviewing ways to cut deteriorating asset quality and credit growth in targeted sectors.

The meeting also assumes importance in the backdrop of the government suggesting that state-controlled lenders should gradually sell...

their stake in non-core investments and resist getting into new ventures where capital is required. Though there has been no official directive about this, a number of government as well as Reserve Bank of India (RBI) officials have been asking PSU banks to dilute their holdings in non-core companies, where the lenders acted as seed capital providers. The initial spending has grown in valuation and will prove profitable for PSU banks if they manage to get buyers.

This will help these banks unlock a considerable amount of capital at a time when the government is struggling to infuse equity into PSU banks. Capital in government banks has been eroding due to a surge in bad debt.

The gross non-performing assets (NPA), or bad loans, of public sector banks rose to Rs. 2.03 lakh crore at the end of September from Rs. 1.55 lakh crore on March 31, 2013.

The gross NPA of banks, including those in the private sector, rose by 28.5 percent from Rs. 1.83 lakh crore in March 2013 to Rs. 2.36 lakh crore in September last year.

The financial health of public sector banks would also be reviewed as all of them have declared their third-quarter results.

The meeting will also discuss the interest subsidy scheme on education loans announced in the Interim Budget will be discussed.

As political largesse, providing relief to nine lakh families ahead of the Lok Sabha elections, the government announced it will waive the interest component of education loans taken before March 2009, a decision that will cost the exchequer Rs. 2,600 crore.

At the end of December 2013, public sector banks had 25,70,254 student loan accounts. The amount outstanding was Rs. 57,700 crore.

The Budget provision setting an agriculture credit target of Rs. 8 lakh crore for the next financial year would also be taken up.

“This year, banks will exceed the target of Rs. 7 lakh crore of agricultural credit. I am therefore encouraged to set a target of Rs. 8 lakh crore for 2014-15,” Chidambaram had said in the Budget speech on January 17.