The NIF will also be used to recapitalise PSU banks and public sector insurance companies, an official release said.
Carrying its disinvestment policy forward, the government today authorised the National Investment Fund (NIF) to buy shares of public sector enterprises, including banks and insurance companies.
The Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Manmohan Singh decided to align the NIF operation to enhance the "disinvestment policy".
The disinvestment proceeds from next fiscal onward will be credited to the existing public account under the head NIF and would remain in the NIF until withdrawn or invested for the approved purposes, the release said.
"The NIF will be used for ... Subscribing to the shares being issued by the Central Public Sector Enterprise (CPSE) including Public Sector Banks (PSBs) and Public Sector Insurance Companies, on rights basis so as to ensure that 51% ownership of the government is not diluted," it said.
Also, the fund will be used for preferential allotment of shares of the CPSE to promoters so that government holding does not go down below 51%, in all cases where the CPSE is going to raise fresh equity to meet its capex programme.
The release further said that the fund managers presently managing the NIF will stand discharged of their responsibility from the date the funds and the interest income are transferred to the fund.
NIF, set up in 2005, is being managed by three fund managers -- UTI Asset Management Company, SBI Funds Management Company and LIC Mutual Fund Asset Management Company.
As much as 75% of the income from NIF is used to finance selected social sector schemes, while the rest is utilised to meet the capital investment requirements of profitable and revivable central PSU.
However, because of the difficult economic situation caused by global slowdown, the government in November 2009 decided to utilise proceeds from disinvestment only for social sector spending.
This exemption is applicable till March this year.
As on August 31, 2012 the corpus in the NIF was Rs 1,814.45 crore, comprising the disinvestment proceeds of Power Grid Corporation of India and the Rural Electrification Corporation Ltd done during 2007-08.
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