Govt insists on share in banks' interest income

The government is likely to continue taking a share of interest income from banks on stake sale of state-run companies, despite the latter’s protests. Banks had to share 90 per cent of their interest income from issues of NTPC, National Mineral Development Corporation (NMDC) and Rural Electrification Corporation (REC).

Banks have expressed unwillingness to do so to the disinvestment department, on the ground that they were “not making any money in these issues due to low or even zero fees in some cases”. The demand has not found any favour with the finance ministry, which says auditors may object to it if the banks stop sharing the interest income.

Moreover, the ministry has now changed the norms for selecting the lead manager for public sector undertaking (PSU) issues. According to new norms, more weight will be given to technical details of bidders, rather than the earlier practice of selecting banks quoting the lowest fees. While the government wants merchant bankers to share the interest income, it will pay a commission to book-running lead managers to be paid to brokers for selling PSU shares. Banks earn interest on the money against which shares are issued and the funds against which shares are not issued. The government takes away 90 per cent of the interest income from the public issues after deduction of expenses. The interest rate is linked to the Mumbai Interbank Offer Rate (Mibor), which is the daily rate at which banks borrow funds from each other.

“Now that this trend (of sharing income) has started, audit will object if we discontinue now. Banks have raised concerns, but they will, perhaps, have to continue doing so,” a finance ministry official said. Moreover, he added, it would otherwise result in a loss of revenue to the government, and it could not possibly have a policy of sharing interest only for select issues.

The government earned an interest income of Rs 5.25 crore on the NTPC issue, Rs 1.25 crore from REC, and Rs 2.5 crore from NMDC.