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Govt's Give-and-take with PSU Banks

Why is the government's massive capital infusion programme leaving the public sector banks short-changed

The government is notorious to give with one hand and take with another. You will see this in strong action every Budget where it will provide relief to individual taxpayers and corporates on some ground and then create new headaches on another. Public sector banks are not immune to this behaviour either.

PSU banks are required to improve their capitalisation ratios to fulfil Basel III norms. To enable banks to do that, the government provided massive capital infusions. But true to its nature, the government has found a way to get back at banks. In the last three financial years it has infused ₹38,517 crore as capital and at the same time has taken home ₹15,570 crore as dividends - 40 per cent of what it invested as capital.

Out of the said amount the highest funded bank is State Bank of India, getting over ₹12,904 crore in the last three years. Overall, FY-13 witnessed the highest dividend payout ratio wherein the government took away 50 per cent of the capital infused in the same year. Dividends have not only lowered the capital bill but also have fetched dividend distribution tax which is charged on all the dividend paid.

The second aspect of the capital infusion is that while the government increases its stakes, this has had an unintended effect of diluting the stake of institutions and public shareholders that find themselves become minority shareholders with less representation and even lower say in how any of these banks should run operations. The table (Rising stakes) shows banks where capital infusion by the government has diluted significant stake of the public shareholders.

There is another issue. SEBI, in a recent diktat has mandated even the public sector undertakings to maintain a minimum public holding of 25 per cent by 2017. While this limit was earlier imposed only on the private sector, PSUs were initially allowed to get away with a public holding of only 10 per cent. SEBI ruling will force the government's hand into diluting its stake in the coming quarters. The last table shows banks where the public holding is less than the required 25 per cent and hence will witness dilution by the government going ahead.

Capital infusion and dividends

Government share of Dividend (₹crore)Capital infusion (₹crore)
Company Name201220132014201220132014
Allahabad Bank16616680--400
Andhra Bank17916239--200
Bank Of Baroda380503521-850550
Bank Of India252382250-8091000
Bank Of Maharashtra10212471470406800
Canara Bank330390350--500
Central Bank Of India117223067624061800
Corporation Bank17817472-204450
Dena Bank589169--700
IDBI Bank2743351238105551800
Indian Bank258227170---
Indian Overseas Bank250136109144110001200
Oriental Bank Of Commerce134156135--150
Punjab & Sind Bank375449-140100
Punjab National Bank4195522136551248500
State Bank Of India144617691312790030042000
Syndicate Bank151267231--200
UCO Bank130837848681200
Union Bank Of India239276152-1114500
United Bank of India71650-100700
Vijaya Bank6868105--250
Total523762034130120001251714000
Data source: Press Information Bureau, Government of India

Rising stake

Government holding (%)
Company Name20142011Change (ppt)
Vijaya Bank74.0657.6916.37
IDBI Bank76.565.1311.37
UCO Bank77.268.139.07
Central Bank Of India88.6380.28.43
Indian Overseas Bank73.865.877.93
Bank Of Maharashtra85.2179.245.97
Corporation Bank63.3358.524.81

Banks with public holding less than 25%

Company NameLatest govt. holding (%)Current mcap (₹cr)Dilution required (%)Dilution value (₹cr)
United Bank of India89.47301014.47436
Central Bank Of India84.285089.2783
Indian Bank81.5170736.51460
Bank Of Maharashtra79.843174.8207
Punjab & Sind Bank79.6221744.62100
UCO Bank77.280822.2178
IDBI Bank76.598401.5148