Banks Told To Pick Up Psu Bank Shares

The government has advised public sector banks to pick up as many shares of listed public sector banks as possible, while ensuring that there is no asset-liability mismatch. This is aimed at preventing public sector bank stocks from being hammered by bearish foreign financial institutions and also ensuring that the US-64 controversy does not further affect already-battered bank scrips.

Banks have also been advised to invest in mutual funds floated by public sector banks and financial institutions (FIs). The government wants these mutual funds to build up their presence in the capital markets.

"There is no government direction to the banks to invest in the shares of other banks. But there has been a general discussion in this matter. Each bank is free to take its own decision depending on the nature of its liabilities," a financial ministry official told Business Standard.

 

Though development FIs do not usually invest in the secondary equity market, they are being encouraged to make a beginning with bank stocks and mutual funds of public sector banks.

The government feels that the State Bank of India has been specifically targeted by certain FIIs over the past few weeks. It fears that the FIIs may also target the other seven public sector banks listed on the stockmarket _ State Bank of Travancore, State Bank of Bikaner, Dena Bank, Bank of Baroda, Bank of India, Oriental Commerce Bank and Corporation Bank. The government is now seeking to create a stronger web of cross-holdings within FIs and tackle fears among bank executives about taking risky decisions in the equity market. Most banks may have problems parking their funds in the coming months. They have been investing a substantial part of their funds in bonds floated by the three major FIs _- IDBI, ICICI and IFCI. But most banks are close to crossing the limit of investing in one company which is 50 per cent of their net worth, as far as IDBI, ICICI and IFCI are concerned.

Given the low credit offtake and high deposit growth, most banks will be left with a huge amount of investible funds even after touching the 50 per cent limit. Most banks have not utilised the 5 per cent limit set on investments in equities and the amount of unutilised limit is close to Rs 5,000 crore. Besides fears of asset-liability mismatch, bank executives have also been avoiding the stock market because of fears of being questioned for taking risky investment decisions.

"They can be questioned about wrong decisions in debt flows as much as they might be on equity investment. I really do not see much difference in it", the finance ministry official said. Banks have been told that they have less to fear about taking risky decisions if they invest in the shares of public sector banks and mutual funds.