Why The Govt Owning 90% Of Many PSBs Is A Problem

The huge holdings may limit its ability to infuse more capital into public sector banks

- Radhika Merwin

The Centre’s holdings in public sector banks have seen a steep 1.6 lakh crore erosion in value over the past five years, even as it pumped in a massive 2.5 lakh crore of capital into these banks. But aside from costing the Centre dearly, the huge capital infusion has also led to a peculiar situation.

Over the past five years, the stake of the government in many PSBs has shot up from 60-70 per cent to over 90 per cent.

Year after year, the government has been issuing shares in PSBs, in lieu of the capital it has been infusing. This has led to a sharp rise in its holdings in these banks. Much of the sharp rise in government holdings has happened in the last two years, thanks to the humongous infusion of 1.96 lakh crore in 2017-18 and 201819 alone.