InvestorQ : Has the government put off the plans of privatization of PSU banks at this point of time?
NISHA Nayak made post

Has the government put off the plans of privatization of PSU banks at this point of time?

Answer
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3 months ago


With the Coronavirus syndrome putting banks under tremendous stress, the plans for privatization of PSU banks may have been put off for now. It may be more the absence of choice in these circumstances. Firstly, PSU banks are expected to face asset quality stress once the EMI moratorium period gets over towards the end of August. That is when the real repayment stress starts to show. Secondly, the government is worried that the valuations are extremely low in terms of P/BV due to very poor investor sentiments. Write-offs have depressed profits and the valuations may defeat the very purpose of monetizing the government stake in PSU banks. Thirdly, most PSU banks under PCA or prompt corrective action face a lot of restrictions. They are constrained in terms of dividend payment, loan book expansion and top level compensation. This is likely to discourage private banks from taking a stake in them. Lastly, it must be remembered that the government stake in many of the stressed PSU banks has now gone above 75% on account of the capital infusion in the last few years. Privatization from these levels will require a big effort as the government also needs to be compensated for the capital infusion.