No dilution for now in PSBs: Sinha

The Union finance ministry said there’d be no dilution of government stake in public sector banks (PSBs) for now, given the implications for valuation due to the high level of bad loans.

“Most of the NPAs (non-performing assets) are with PSBs,” explained minister of state Jayant Sinha. “If we dilute stake now, we will be diluting the valuation — we need to increase the price to book multiples of PSBs...and bring them at par with private sector banks.”

Recently, the government said it had decided to bring down its stake in PSBs to 52 per cent.

The rise in bad loans at PSBs has been a major concern for the Reserve Bank and the government. Gross NPAs of PSBs were Rs 2,60,531 crore as on end-December 2014.

Most restructured loans are of the corporate sector. The top 30 defaulters’ bad loan total is Rs 95,122 crore, over a third of the entire NPAs of PSBs at end-December.

Overall, gross NPAs in the banking system rose from 2.3 per cent of the total in March 2009 to 4.5 per cent in September 2014.

The minister, who was speaking at a Confederation of Indian Industry (CII) event, also underlined the need to raise the ratio of taxes to gross domestic product, from the present 15-16 per cent to 20-25 per cent.”Our GDP ratio is the lowest among the BRICS and OECD countries...From the banking perspective, if GDP size is to double, the size of the banking sector has to grow by four to five times,” he said.