A steep erosion is observed to the tune of Rs. 1.6 lakh crore in the value of Centre’s holding in Public Sector Banks during the past five years.  This happened inspite of the Government ploughing a sum of Rs. 2.5 lakh crore in the PSU Banks.  The huge capital infusion has led to a peculiar condition now.

  1. It is seen that during the last five years, the Central Government’s stake in many of the Public Sector Banks has crossed from 60 to 70 cent to over 90 per cent which is alarming.
  2. Every year after year, Government is issuing shares on the PSU Banks in lieu of the Capital it infuses therein which in turn has resulted in a continuous increase in the Government’s holding in these banks.
  3. Most of the increase has happened in the last two years and the figure speaks that the infusion was Rs. 1.96 lakh crore in 2017-18 alone.

The above facts are clearly shown in the chart provided herein.


Restriction on Further Capital Infusion

  • One of the key factors to be noted is what is the reason for the high stake of Government in these banks? It is nothing but the restriction the Government puts on further capital infusion.
  • This means with the Government’s stake being almost 90 per cent in these banks, further infusion of capital in these banks may prove to be very difficult.
  • Many of the big banks who have figured in the recent Government’s merger initiative contribute for the high Government holding.
  • Depending on the swap ratio the Government’s stake in the proposed merged entities would be to the tune of 80-85 percent which means that the centre may be faced with the similar problem in the coming days.
  • In the recent merger announcement, the Government has proposed to infuse Rs. 16,000 crores into PNB and Rs. 11,700 crores into Union Bank of India.

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