NEW DELHI: The proposed divestment of majority stake in state-owned lenders by the government will be credit negative for these banks as many of them have weak credit profiles and depend on government support, said ICRA. During its consolidation exercise last year, the government had excluded a few weaker public sector banks (PSBs).
These were Bank of India, Bank of Maharashtra, Central Bank of India, Indian Overseas Bank, Punjab & Sind Bank and UCO Bank. Most of these PSBs have weak credit profile and their credit ratings are primarily supported by a) their sovereign ownership and b) their stable deposit base, which in-turn is supported by their ownership, the agency noted.
While a stake sale can help the government meet its ambitious divestment targets and also save it from future capital infusion, for the stability of the banking sector the divestment will require amendment to the Banking Companies (Acquisition And Transfer Of Undertakings) Act, 1970/1980, which provides that the
government shall hold not less than 51 per cent of the paid-up capital of a PSB.
The financial profile of these PSBs is very weak. Cumulatively, these banks reported losses of Rs 1.08 lakh crore during FY 2016-2020 and the government had to infuse a whopping Rs 76,600 crore in capital during this period, and their gross non-performing assets (NPA) ratio stood at a high 15.5 per cent as on March 31, 2020.