Chidambaram rules out lowering govt stake in public sector banks

Chidambaram 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% 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%. When we came to power, I made it clear that it will not be reduced to below 51%. That stands. We have no proposal to reduce government equity to below 51%," 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% 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%," 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 5% 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%, 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.