Govt should reduce stake in public sector banks: SBI economists

MUMBAI: Two weeks ahead of the Union Budget, the country’s largest public sector bank has released a research report proposing that the government should reduce its holding in public sector banks considering the positive impact of their “good financial health” on valuations. The report also called for consolidation of the number of PSU banks.
While the recommendation for the government to divest its stake in public sector banks is a standard suggestion by management consultancies and industry associations, it is considered a radical recommendation in the PSU report.
In a pre-Budget recommendations report, the Economic Department of SBI, headed by group chief economic advisor Soumya Kanti Ghosh, suggested a slew of reforms for PSU banks, including reduction in ownership stakes, HR autonomy, investment in digital and IT infrastructure, and alignment of sector priority framework with the country’s priorities. “Since banks are in good health, the government should take a stance on disinvestment from PSBs,” the report said.
The report also calls for clarification on the government’s stake sale in IDBI Bank. “The government and LIC are selling nearly 61% stake in IDBI Bank. They have invited bids from buyers in October 2022. In January 2023, DIPAM received several expressions of interest Commercial bank participation in the offering. We expect the government to clarify this in the Budget,” the report said. The report also calls for achieving tax parity for bank deposits with other asset classes.
“The current equity/mutual fund rules provide for a tax on short-term capital gains at 15%, while long-term capital gains are taxed at a moderate rate of 10%, except for LTCG income up to Rs 1 lakh in a tax year. Further, the set-off of losses against profits and carry-forward of loss for up to eight years makes the opportunity cost of such alternative investments quite lucrative,” the report said. It added that the government should revise the tax on interest on deposits and implement flat taxation over the entire maturity period.
The report comes at a time when the sale process of IDBI Bank has stalled as the RBI did not give “due and proper” recognition to any bidder. The government has failed to sell IDBI Bank even though the lender was reclassified as a private bank in March 2019.