As indicated last year, after the success of the CPSE and Bharat-22 Exchange Traded Funds (ETF), the Finance Ministry is looking at the feasibility of launching an ETF consisting exclusively of stocks of public sector banks and financial institutions including insurance companies this fiscal year. Sources say that it will soon appoint an advisor to explore feasibility in detail.
“The ETF is getting a very good response from the investors. This year, we are considering extending the instrument to PSBs and other financial institutions. We will soon be appointing an advisor to give suggestions on launching an ETF with PSU banks. It will also include insurance companies in the basket,” a finance ministry official said.
The idea is not a new one. Last year, the government had already indicated that it could include more sectors like banking and finance in new ETFs.So far, the two existing ETF schemes have attracted many investors. The government has raised Rs 32,900 crore through two tranches and an additional fund offer of the Bharat-22 ETF and another Rs 38,000 crore from five tranches of the CPSE ETF in the domestic market.
However, officials say the government will watch closely for one more quarter since they expect the balance sheets of PSBs to be better placed by then. “We expect balance sheet of PSU banks to strengthen going forward and an ETF would provide risk-averse investors with an option to hold shares of multiple banks through a single financial instrument,” the official said.
The government has been using ETFs as a tool for disinvestment over the past few years. ETFs function like a mutual fund scheme and have underlying assets of government-owned companies. The government currently has two exchange-traded funds: CPSE ETF managed by Reliance Mutual Fund and launched in 2016, and Bharat-22 managed by ICICI Prudential, launched in 2017.
The CPSE ETF tracks shares of 11 CPSEs while the Bharat-22 ETF has 16 CPSEs covering six sectors, 3 public sector banks and 3 private sector companies where the government holds a minority stake. The Finance ministry has also started consultations with global investors for launching a CPSE-scrip based ETF in overseas markets.