FM rules out lowering govt stake in Public Sector Banks

NEW DELHI: Finance Minister P Chidambaram on Tuesday ruled out lowering government stake in Public Sector Banks to below 51 per cent and said there was no uncontrolled inflow of foreign capital into Indian banks.

"The previous NDA government had announced reducing government equity in Public Sector Banks to 33 per cent. When we came to power, I made it clear that it will not be reduced to below 51 per cent. That stands. We have no proposal to reduce government equity to below 51 per cent," he said replying to supplementaries in Rajya Sabha.

Prime Minister's Economic Advisory Council Chairman C Rangarajan had suggested that government may have to either bring in additional capital in Public Sector Banks or reduce its share to below 51 per cent to ensure rapid growth of PSU banks.

"There is no proposal under consideration to amend the statutory or other provisions for enabling government to bring down its shareholding in Public Sector Banks (other than associate banks of the State Bank of India where government has no shareholding) to below 51 per cent," Chidambaram said.

RBI guidelines on Tier-I capital are being strictly followed by banks, he said.

"Our policy is that we will ensure adequate capital strictly in accordance with Basel-II norms."

On the surge in foreign capital inflow, he said, "There is no uncontrolled inflow (of foreign funds) into the banking sector."

The RBI has laid strict guidelines including a cap on FII and individual investments at 20 and five per cent respectively, the Minister said.

"There is no rush of capital in the banking system," he said.

Flow of capital in banks is strictly regulated, the Finance Minister said.

"There are large inflows into other sectors," Chidambaram said adding the increased foreign capital was mainly due to increase in export earnings, remittances, FDI, foreign institutional investments and private equity.

"All this, of course, is good if we can absorb and turn it into productive investment," he said.

But, if large inflows gave rise to inflationary expectations or inflation, the RBI will have to make changes in monetary policy that will be reflected in bank rates, the Minister said.

Asked if government proposed to raise its stake in Public Sector Banks to 74 per cent, Chidambaram said there was no such proposal as that would require a large amount of funds.

To a separate question, the Finance Minister said delivering faster and more inclusive growth was key to reducing poverty.

"To this end, it (the 11th Plan) has set a target of nine per cent per annum GDP growth for the country as a whole to be achieved in a manner that would ensure greater inclusiveness of the growth process."

UPA government's multi-pronged strategy to reduce the divide between urban and rural India through schemes such as Bharat Niram and Rural Employment Guarantee Scheme would address non-income aspects of poverty and provide for ways to raise income levels, he said.

As part of this, priority sector lending has been raised. Loans to agriculture sector has been raised from Rs 86,000 crore in 2003-04 to Rs 225,000 crore this year while those to small scale industries is being targeted to be doubled in five years.

Last year, being the first year of the target period, SSI lending rose by over 20 per cent and this year too it is slated to rise by at least 20 per cent, Chidambaram said.