Cabinet okays Rs. 6,000 cr infusion for govt banks
New Delhi 02-Dec-2010
The cabinet on Wednesday approved an infusion of Rs.6,000 crore to public sector banks to bolster capital adequacy and thereby allow them to increase lending activity.
One objective of this decision is to allow the government to enhance its shareholdings to up to 58% in 10 banks where its holding is currently below that level, the government said in a statement.
Additional lending can take place when it is backed by a minimum amount of equity as determined by the Reserve Bank of India (RBI).
"The exact amount, mode of capitalization and other terms and conditions would be decided in consultations with the banks at the time of the infusion," the government said.
In another development, the cabinet committee on economic affairs (CCEA) approved the stock split of state-run Oil and Natural Gas Corp. Ltd (ONGC), news agency Reuters reported, quoting transport minister Kamal Nath.
The government plans to raise around Rs.14,500 crore by selling a 5% stake in the hydrocarbon exploration firm, in which it holds 74.14%.
The state-owned explorer plans to launch a follow-on public offer (FPO) in March, said R.S. Sharma, chairman, ONGC.
Separately, state-owned oil refining and marketing firm IndianOil (IOC) expects to sell shares at Rs.450 each through its FPO planned for January, said chairman B.M. Bansal.
IOC's FPO, under which the government aims to sell a 10% stake in the company, could be the biggest till March. The company will issue new shares equivalent to 10% of its post-issue capital. At current prices, the issue size could be around Rs.20,000 crore.
IOC and ONGC shares rose by 10.96% and 3.23%, respectively, to close at Rs.384.10 and Rs.1,288.50 on the Bombay Stock Exchange on Wednesday. The Sensex ended up 1.68% at 19,850 points.
Finance minister Pranab Mukherjee has repeatedly said the government wants to bring down India's fiscal deficit.
Enhanced disinvestment proceeds would give it breathing space to step up expenses without resorting to more borrowings, already at a record. Mukherjee aims to trim the fiscal deficit to 5.5% of gross domestic product (GDP) by the fiscal ending 31 March, from a revised 6.6% last year.
As IOC and ONGC do not have the requisite number of independent directors on their boards as stipulated under Clause 49 of the listing agreement between publicly listed companies and stock exchanges, the petroleum ministry is in the process of appointing independent directors on these boards.
IOC has hired six banks, Merrill Lynch, Citigroup, ICICI Securities, Morgan Stanley, SBI Capital and UBS to handle its public offer.
While the Congress-led United Progressive Alliance (UPA) government decided to decontrol petrol prices on 25 June, state-owned oil marketers such as IOC, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd still sell diesel at the government-mandated price. IOC is losing Rs.105 crore a day on sales of diesel, domestic liquefied petroleum gas and kerosene.
The government expects the cost of selling fuel below cost in the current fiscal to be around Rs.65,000 crore, said petroleum minister Murli Deora at a meeting of the parliamentary consultative committee for the ministry.
Earlier this year, the government said it would raise Rs.40,000 crore in 2010-11 by selling shares of public sector companies. Of this, it has already raised Rs.21,000 crore.
With economic growth not showing any signs of letting up, this will mean the government should be well-placed to spend on its flagship social welfare programmes without derailing the attempt at fiscal consolidation.
