Divestment in PSU banks not happening soon: minister

In comments that should cheer India's powerful public sector bank unions, minister of state for finance Jayant Sinha today ruled out diluting the government's stake in these PSBs at current valuations, which he said are distressed.

He said his government may divest in these banks only if it manages to push up the price to book multiples of these banks and bring them on par with private sector banks – indicating that the policy decision to reduce its stake in PSBs to 52 per cent won't be implemented anytime soon.

The public sector banks continue to witness stressed valuations on account of rising bad loans, which have become a major concern for the Reserve Bank of India and the government. The gross NPAs of PSU banks stood at Rs260,531 crore as of December 2014.

Of the total loans that have turned bad, loans of the top 30 defaulters sum up to Rs95,122 crore (See: Top 10 defaulters account for Rs28,152 cr NPAs in public sector banks), which is more than one-third of the entire non-performing assets of public sector banks as on December 2014, while most of the restructured loans belong to corporate sector.

Further, the minister also underlined the need to raise the tax-GDP ratio from 15 per cent to 20-25 per cent. He highlighted that the country's tax-to-GDP ratio was the lowest among BRICS and OECD countries, adding that from the banking perspective, if GDP size doubles, the size of the banking sector has to grow by four to five times.

In order to alleviate poverty, Sinha said, the country has to develop a new model to achieve growth rate of 7-8 per cent over the next 10 years, which could move the economy will move from the $2 trillion economy to $4-5 trillion economy.