Bank privatisation not in one go, govt may retain at least 26% in 2 PSBs

The government may not fully exit from the two state-run banks that are to be privatised and instead retain at least a 26% stake for the first few years. A senior official said the extent of the stake sale will depend on interest from investors and market conditions.

The government will introduce a bill in the winter session of parliament to make the changes needed before privatising the two banks. The Central Bank of India and Indian Overseas Bank have reportedly been shortlisted by Niti Aayog for disposal. However, a final decision is yet to be taken.

"The upcoming bill will clear decks for regulatory approvals required for privatisation of two PSBs (public sector banks) but we may like to retain some stake and dilute it at a later stage," the official said, reasoning that the government may like to cash in on the upside in valuation after the stake sale.

Banking on Better Valuation

A similar strategy is being pursued in the case of state-run BEML (formerly Bharat Earth Movers Ltd), where the government is divesting 26% equity along with management control of the Bengaluru-based company. The government has a 54.03% stake in the company. "The required changes in the (banking) laws have been vetted by the law ministry. We will soon take it to the cabinet so that it can be taken up by parliament," said the official cited above.

The Banking Laws Amendment Bill, 2021, will make changes to the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 and 1980, and incidental amendments to the Banking Regulation Act, 1949.

"In case of IDBI Bank as well we have said that the extent of respective shareholding to be divested will be decided at the time of structuring of transaction in consultation with the Reserve Bank of India," said another official aware of developments. IDBI Bank is also on the government's asset-sale list.

He said parallel consultations are on with the banking regulator, the Reserve Bank of India (RBI), for relaxations in ownership and management criteria. These are aimed at allowing the banks being divested to make room for a wider pool of bidders such as non-banking finance companies (NBFCs) that are owned by corporate groups.

Finance minister Nirmala Sitharaman had announced the privatisation of two state-run banks as part of the government's disinvestment programme in her February budget speech. "Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22," she had said.

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Govt to amend banking laws to facilitate privatisation of two PSU banks

To facilitate privatisation of two public sector banks (PSBs), the government is all set to introduce a banking laws amendment bill in the upcoming Winter Session starting Monday. Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 earlier this year had announced the privatisation of PSBs as part of disinvestment drive to garner Rs 1.75 lakh crore.

The Banking Laws (Amendment) Bill, 2021, to be introduced during the session is expected to bring down the minimum government holding in the PSBs from 51 per cent to 26 per cent, sources said.

However, sources said a final call in this respect would be taken by the Union Cabinet when it would vet the proposed legislation.

“To effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two Public Sector Banks,” according to the list of legislative business for the Winter Session.

These Acts led to the nationalisation of banks in two phases and provisions of these laws have to be changed for the privatisation of banks, sources said.

In the last concluded session, Parliament passed a bill to allow privatisation of state-run general insurance companies.

The General Insurance Business (Nationalisation) Amendment Bill, 2021, removed the requirement of the central government to hold at least 51 per cent of the equity capital in a specified insurer.

The Act, which came into force in 1972, provided for the acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers in order to serve better the needs of the economy by securing the development of general insurance business.

Government think-tank NITI Aayog has already suggested two banks and one insurance company to Core Group of Secretaries on Disinvestment for privatisation.

According to sources, Central Bank of India and Indian Overseas Bank are likely candidates for the privatisation.

As per the process, the Core Group of Secretaries, headed by the Cabinet Secretary, will send its recommendation to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.

The members of the Core Group of Secretaries include economic affairs secretary, revenue secretary, expenditure secretary, corporate affairs secretary, legal affairs secretary, Department of Public Enterprises secretary, Department of Investment and Public Asset Management (DIPAM) secretary and an administrative department secretary.

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Govt may defer privatisation plans for 2 PSU banks to FY23: Report

 

India’s plan to sell two state-controlled lenders may get deferred to next financial year as the government is yet to seek parliament’s nod for changes in laws required to start the transaction, according to people familiar with the matter.

The Finance Ministry hasn’t finalized modalities to seek approval from lawmakers for the sale, which leaves little time for the process to be completed this year, the people said, asking not to be named as the information is not public. The government will seek buyers for two state-run banks by March 2022, Finance Minister Nirmala Sitharaman had said in February, as she outlined the nation’s budget for the current financial year that began April 1.

A spokesperson for the Finance Ministry could not be immediately reached for a comment.

India’s plan to sell a majority stake in the country’s second-biggest state refiner has also slowed down, and the transaction may only take place early next year rather than in 2021, Bloomberg News reported in July. The administration could still go ahead with other asset sales, including Life Insurance Corp. of India’s initial public offer, that could help the country’s efforts to raise funds to make up for any fall in tax revenues this year.

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HDFC Bank's Q1 net profit rises 16.1% YoY

HDFC Bank reported a net profit of Rs 7,730 crore in the second quarter (Q1) ended June 30, 2021, up by 16.1% year-on-year (YoY) as compared to Rs 6,659 crore in the same quarter last financial year 2020-21 (FY21). The figure was lower than ET Now poll of Rs 7,900 crore.

Net interest income for the quarter under review was up 18% to Rs 17,009 crore as compared to Rs 15,665.4 crore in Q2 FY21 driven by advances growth of 14.4%, and a core net interest margin of 4.1%.

India's largest private lender reported a total income of Rs 36771.47 crore during the June quarter against Rs 34,453.28 crore last year. The bank also recommended a dividend of Rs 6.50 per share in the board meeting held on Saturday.

Gross non-performing assets (NPAs) or bad loans rose sharply 13% quarter-on-quarter (QoQ) to Rs 17,098 crore as compared to Rs 15,086 crore in January-March 2021 quarter. 

Provisions and contingencies for the quarter ended June 2021 quarter were Rs 4,830.8 crore as against Rs 3,891.5 crore for the quarter ended June 30, 2020.

"The country was hit by a second wave of COVID-19, with a significant surge in cases following the discovery of mutant coronavirus strains. While there was an improvement towards the end, business activities remained curtailed for almost two-thirds of the quarter. These disruptions led to a decrease in retail loan origination, sale of third party products, card spends and efficiency in collection efforts. The lower business volumes, coupled with higher slippages, resulted in lower revenues, as well as an enhanced level of provisioning," said HDFC Bank in a statement. 

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Government may shortlist two PSU banks for privatization

 The Centre has shortlisted Central Bank of India (CBI) and Indian Overseas Bank (IOB) for divestment.The two state-run banks might see 51 percent sale in the first phase of disinvestment.

The government will amend the Banking Regulations Act, and some other banking laws for divestment, the news channel reported.

Following the news, shares of CBI and IOB surged 20 percent on June 21.

The weak financial metrics of lenders like CBI and IOB could lead to unexpected hurdles in the government's plan to privatise the lenders, banking analysts.

Both the IOB and CBI are currently under the Prompt Corrective Action (PCA) framework imposed by the Reserve Bank of India (RBI). Under the PCA framework, the central bank imposes certain business restrictions on lenders with weak financial metrics.

The Centre has set an ambitious divestment target of Rs 1.75 lakh crore for FY22.

The government's plans to sell its stakes in Air India, Bharat Petroleum Corporation (BPCL), Shipping Corporation of India and some other companies have been disrupted due to the COVID-19 pandemic

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NITI Aayog submits final list of PSU banks to be privatised

Government think tank Niti Aayog has submitted to the Core Group of Secretaries on Disinvestment the finalised names of PSU banks to be privatised in the current fiscal as part of the disinvestment process, a senior government official said.

Niti Aayog has been entrusted with the task of selection of names of two public sector banks and one general insurance company for the privatisation as announced in the Budget 2021-22.

"We have submitted the names (of PSU banks) to the Core Group of Secretaries on Disinvestment," the official said.

The other members of the high-level panel are economic affairs secretary, revenue secretary, expenditure secretary, corporate affairs secretary, legal affairs secretary, Department of Public Enterprises secretary, Department of Investment and Public Asset Management (DIPAM) secretary and administrative department secretary.

Following the clearance from the Core Group of Secretaries, headed by the Cabinet Secretary, the finalised names will go to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.

Changes on the regulatory side to facilitate privatisation would start after the Cabinet approval.

Finance Minister Nirmala Sitharaman had recently said "interests of workers of banks which are likely to be privatised will absolutely be protected whether their salaries or scale or pension all will be taken care of".

Explaining the rationale behind the privatisation, Sitharaman had said that banks in the country needed to be bigger, just like the State Bank of India (SBI).

"We need banks which are going to be able to scale up... We want banks that are going to be able to meet the aspirational needs of this country," Sitharaman had said, adding that a lot of thought had gone behind the intention to privatise some public sector banks.

The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including 2 PSU banks and one insurance company, during the current financial year. The amount is lower than the record budgeted Rs 2.10 lakh crore to be raised from CPSE disinvestment in the last fiscal.

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Cabinet approves strategic disinvestment, transfer of management control in IDBI Bank

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has given its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd on Wednesday.

"The extent of respective shareholding to be divested by GoI and LIC shall be decided at the time of structuring of transaction in consultation with Reserve Bank of India," said the government in a statement.

To be sure, LIC Board had earlier approved stake dilution, relinquishing of management control in IDBI Bank.

Government of India (GoI) and LIC together own more than 94% of equity of IDBI Bank (GoI 45.48%, LIC 49.24%). LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter.

LIC’s Board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank through divesting its stake along with strategic stake sale envisaged by the government with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation and interest of policy holders.

This decision of LIC's Board is also consistent with the regulatory mandate to it to reduce its stake in the Bank.

It is expected that strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank Ltd. and shall generate more business without any dependence on LIC and Government assistance/funds.

Resources through strategic disinvestment of Govt. equity from the transaction would be used to finance developmental programmes of the Government benefiting the citizens.

Last month, the RBI removed the LIC-controlled bank from its prompt corrective action (PCA) framework, which was imposed in May 2017, after it had breached certain regulatory thresholds, including capital adequacy, asset quality and profitability.

Presenting the Budget on February 1, Finance Minister Nirmala Sitharaman had proposed to take up the privatisation of two state-run banks along with IDBI Bank in FY22.

Meanwhile, IDBI Bank reported a nearly four-fold jump in its standalone profit after tax to ₹512 crore in the March quarter compared to ₹135 crore in the year-ago period on the back of an impressive 38% growth in its net interest income (NII).

The lender also turned profitable on an annual basis after five years as it reported a standalone profit of ₹1,359 crore for 2020-21 fiscal that ended in March as against a loss of ₹12,887 crore in FY20. On a consolidated basis, the lender reported a net profit of ₹547.93 crore for the January-March quarter as against ₹165.69 crore in the year-ago period.

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Government mulls bank merger before privatisation

 

The government will look into the balance sheet of banks in the first quarter of next financial year and may consider merger of two public sector banks, before going ahead with privatisation. According to sources in the Finance Ministry, the government has not yet shortlisted any bank so far and it would be done only after examining the balance sheet.

“Lots of names are floating but we have not shortlisted anything yet. It will be decided after taking into account performance of the Q4 (Jan- March 2021) and Q1 of FY22 ( April to June 2021) after consultation with the RBI. If required, the PSBs can be merged before privatisation,” a senior official with the finance ministry told TNIE. 

The finance minister, in her budget speech, had announced that two state-run banks will be privatised in the next fiscal. “Other than IDBI Bank, we propose to take up the privatisation of two public-sector banks and one General Insurance company in the year 2021-22,” Nirmala Sitharaman had said.  Other banks including Bank of India as well as Punjab and Sind Bank were also doing the rounds in various media reports.  However, the official added that it may not be the “weakest” bank which will go for privatisation.

“The decision will be taken on the basis of unlocking the valuation and not on which is the weakest Bank. It is a more complex process. A lot of factors may go into the decision making and also on the appetite of the investor,” the official argued. On the timeline, the official ruled out the process would be initiated in the first half of the next financial year.

“There are many legal processes which need to be followed to facilitate privatisation and it requires certain amendments. All these will take some time,” the official said. The government is likely to bring amendments to two legislations later this year. Finance ministry sources said that amendments would be 

required in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 to facilitate the privatisation.

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