The Telegraph
Since 1st March, 1999
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Govt wants pound of flesh from banks

New Delhi, May 30: The finance ministry today said it was never ready to accept the return of equity from state-owned banks at par value — when the shares quote much higher in the market.

“It has been clarified that it has neither been decided nor is it the intention of the government to accept return of equity from some listed public sector banks when the price is higher in the market,” said an official release issued here this evening.

The clarification came in the face of reports that the Centre would take back the shares from banks at face value.

In 1994-95, the banks were provided additional capital by the government to enable them to meet the stringent prudential norms set by the Reserve Bank.

Of late, many of them have been returning a portion of the government equity after their financial performance, including capital adequacy ratios, improved.

Bank of India, Canara Bank and Andhra Bank are among those that have given back the government a part of its equity. Punjab National Bank, Oriental Bank of Commerce, Indian Overseas Bank, Bank of Baroda and Andhra Bank, want to do so soon.

The move boosts the earnings per share (EPS), especially for banks waiting to tap the capital market.

The government has not benefited as the equity was returned at par, instead of the market price, even though the shares of these banks soared to all-time highs on the back of a 50 per cent leap in profit, better finances and reduction in the volume of bad loans.

Banks, one of the best performers on bourses in recent months, have extended their gains in the past few weeks as reports that the government would ask for its pound of flesh boosted hopes of an enduring rally.

“Banks would not be interested in returning the equity at market price. The whole issue needs to be re-examined now that a premium is fixed because by returning the equity earlier, we used to earn 10 per cent,” Corporation Bank chairman and managing director K. Cherian Varghese told The Telegraph.

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