Tuesday, March 1, 2016

What does Union Budget have for PSUs?

FM Jaitley 
RURAL economy and infrastructure were his main focus areas when Finance Minister presented the Union Budget for 2016-17, his third as the Finance Minister. The PSUs that had lot of expectations from the minister were not happy though they found reference in the annual financial document. Here are some key features outlined...
in the Budget that have a direct bearing on the sector.
A new policy for management of government investment in public sector enterprises, including disinvestment and strategic sale, was approved.
The government will soon come out with a comprehensive policy for strategic stake sale that will detail the mode as well as valuation methodology for outright sale of even profit making companies.
The policy would cover both profit and loss making CPSEs, much on the lines of the report of two Disinvestment Commissions which had submitted their reports in the previous NDA regime.
The PSUs will now have to monetise their idle assets for new investments.
The FM has also announced the renaming of the Department of Disinvestment to Department of Investment and Public Asset Management (DIPAM). Jaitley said the NITI Aayog will identify the state-owned companies which would be eligible for strategic sale.
"We have to leverage the assets of CPSEs for generation of resources for investment in new projects. We will encourage CPSEs to divest individual assets like land, manufacturing unit to release their asset value for making investments in new projects," Jaitley said in his Budget 2016-17 speech.
"The NITI Aayog will identify the CPSE for strategic sale. We will adopt a comprehensive approach for efficient management of the government investment in CPSEs by addressing issued such as capital restructuring, dividend, bonus shares," Jaitley said.
The previous NDA government led by Atal Bihari Vajpayee had between 1999 and 2004 privatised about a dozen state-owned firms and hotels including Videsh Sanchar Nigam Ltd (VSNL), Bharat Aluminium Company Ltd (BALCO), CMC Ltd and Hindustan Zinc (HZL). But the policy was buried after the UPA came to power and only minority stake sales was pursued since then. The government is now looking at reviving the policy. In the Budget for 2015-16, Jaitley had said the government will raise Rs 28,500 crore by way of strategic stake sale.
But with no specific policy detailing how to select a PSU for strategic stake sale, methodology for valuation and the process to be followed, the disinvestment department could not go ahead with selling any PSU so far this fiscal.
Another key announcement was allocation of Rs 25,000 crore towards recapitalisation of public sector banks. This was an effort to rein in on the growing size on NPAs.
Jaitley also proposed the public listing of four wholly-owned public sector general insurance companies.
“...(proposed to) undertaking important banking sector reform and public listing of public sector general insurance and undertaking significant changes in FDI policy,” Jaitley said.
There are four public sector general insurance companies in the country - New India Assurance Company Ltd, National Insurance Company Ltd, Oriental Insurance Co Ltd, and United India Insurance Co Ltd.
General Insurance Companies owned by the Government to be listed in the stock exchanges. Mobilisation of additional finances to the extent of Rs 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising bonds.
Changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of domestic industry in sectors like Information technology hardware, capital goods, defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of aircrafts and ship repair. This measure will help many PSUs engaged in engineering and manufacturing works like HAL, BHEL.
Jaitley plans to provide Rs.25,000 crore capital each in the current and next fiscal years, while Rs.20,000 crore would be provided during 2017-18 and 2018-19.
In July last, the government had presented to parliament a supplementary demand for grants to provide for Rs.12,000 crore towards recapitalisation of public sector banks (PSBs).
The Rs.25,000 crore this year are being provided through three tranches.
Around 40 percent of the amount is to be given to those banks which require support, and all PSBs will be brought to the level of at least 7.5 percent core capital by the end of fiscal 2016, the finance ministry has said.
In the second tranche, 40 percent of capital is to be allocated to State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank and IDBI Bank.
The remaining 20 percent is to be allocated to the banks based on their performance during the three quarters in the current year.
As per estimates, PSBs would need additional capital of up to Rs.240,000 crore by 2018 to meet the Basel III capital adequacy norms, put in place to guard against a repeat of the situation following the 2008 US financial crisis.
"We have to leverage the assets of CPSEs for generation of resources for investment in new projects. We will encourage CPSEs to divest individual assets like land, manufacturing unit to release their asset value for making investments in new projects," Jaitley said in his budget speech.
The quantum of exposure of Indian scheduled banks in terms of gross non-productive assets, re-cast loans and write-offs was Rs.9.5 lakh crore as of September last year.

No comments:

Post a Comment