Why is the government's massive capital infusion programme leaving the public sector banks short-changed
09-Dec-2014 •Research Desk
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.
| Government share of Dividend (₹crore) | Capital infusion (₹crore) | |||||
| Company Name | 2012 | 2013 | 2014 | 2012 | 2013 | 2014 |
| Allahabad Bank | 166 | 166 | 80 | - | - | 400 |
| Andhra Bank | 179 | 162 | 39 | - | - | 200 |
| Bank Of Baroda | 380 | 503 | 521 | - | 850 | 550 |
| Bank Of India | 252 | 382 | 250 | - | 809 | 1000 |
| Bank Of Maharashtra | 102 | 124 | 71 | 470 | 406 | 800 |
| Canara Bank | 330 | 390 | 350 | - | - | 500 |
| Central Bank Of India | 117 | 223 | 0 | 676 | 2406 | 1800 |
| Corporation Bank | 178 | 174 | 72 | - | 204 | 450 |
| Dena Bank | 58 | 91 | 69 | - | - | 700 |
| IDBI Bank | 274 | 335 | 123 | 810 | 555 | 1800 |
| Indian Bank | 258 | 227 | 170 | - | - | - |
| Indian Overseas Bank | 250 | 136 | 109 | 1441 | 1000 | 1200 |
| Oriental Bank Of Commerce | 134 | 156 | 135 | - | - | 150 |
| Punjab & Sind Bank | 37 | 54 | 49 | - | 140 | 100 |
| Punjab National Bank | 419 | 552 | 213 | 655 | 1248 | 500 |
| State Bank Of India | 1446 | 1769 | 1312 | 7900 | 3004 | 2000 |
| Syndicate Bank | 151 | 267 | 231 | - | - | 200 |
| UCO Bank | 130 | 83 | 78 | 48 | 681 | 200 |
| Union Bank Of India | 239 | 276 | 152 | - | 1114 | 500 |
| United Bank of India | 71 | 65 | 0 | - | 100 | 700 |
| Vijaya Bank | 68 | 68 | 105 | - | - | 250 |
| Total | 5237 | 6203 | 4130 | 12000 | 12517 | 14000 |
| Data source: Press Information Bureau, Government of India | ||||||
| Government holding (%) | |||
| Company Name | 2014 | 2011 | Change (ppt) |
| Vijaya Bank | 74.06 | 57.69 | 16.37 |
| IDBI Bank | 76.5 | 65.13 | 11.37 |
| UCO Bank | 77.2 | 68.13 | 9.07 |
| Central Bank Of India | 88.63 | 80.2 | 8.43 |
| Indian Overseas Bank | 73.8 | 65.87 | 7.93 |
| Bank Of Maharashtra | 85.21 | 79.24 | 5.97 |
| Corporation Bank | 63.33 | 58.52 | 4.81 |
| Company Name | Latest govt. holding (%) | Current mcap (₹cr) | Dilution required (%) | Dilution value (₹cr) |
| United Bank of India | 89.47 | 3010 | 14.47 | 436 |
| Central Bank Of India | 84.2 | 8508 | 9.2 | 783 |
| Indian Bank | 81.51 | 7073 | 6.51 | 460 |
| Bank Of Maharashtra | 79.8 | 4317 | 4.8 | 207 |
| Punjab & Sind Bank | 79.62 | 2174 | 4.62 | 100 |
| UCO Bank | 77.2 | 8082 | 2.2 | 178 |
| IDBI Bank | 76.5 | 9840 | 1.5 | 148 |
