Government should cut public sector bank stake: SBI economists

MUMBAI: A fortnight ahead of the Union Budget, a research report released by the country's largest public sector bank has proposed that govt pare its stake in public sector banks given the positive impact of their 'good financial health' on valuations. The report also called for consolidation in the number of PSU banks.
While a recommendation for govt to divest stake in PSU banks is a standard suggestion from management consultancy firms or industry associations, it is considered a radical recommendation for PSU report.
In a report containing pre-Budget recommendations, SBI Economics Department, headed by group chief economic adviser Soumya Kanti Ghosh, has suggested multiple reforms for PSU banks, including reduction of ownership stake, HR autonomy, investments in digital & IT infrastructure and aligning the priority sector framework to the nation's priorities. "As banks are in good condition, govt should take stance on disinvestment of PSBs," the report said.
The report also calls for clarification on govt on the stake divestment in IDBI Bank. "Govt and LIC are selling an almost 61% stake in IDBI Bank. They invited bids from buyers in Oct 2022. In Jan 2023, DIPAM received several expressions of interest for the IDBI Bank stake on offer. We expect govt to clarify this in the Budget," the report said. The report also calls for bank fixed deposits achieving tax parity with other asset classes.
"The present dispensation for equity/mutual fund holdings stipulates a short-term capital gains tax at a flat rate of 15%, while long-term capital gains are taxed at a moderate 10%, with an exemption allowed for income of LTCG up to Rs 1 lakh during a fiscal year. Additionally, the setting-off of losses against profits and carrying over the loss for up to the next eight years makes the opportunity cost of such alternative investments quite lucrative," the report said. It added that govt should tweak the tax on deposit interest and implement a flat tax treatment across the maturity ladder.
The report comes at a time when the IDBI Bank sale process is stuck because of RBI not granting 'fit and proper' recognition to any bidder. Govt has not managed to sell IDBI Bank despite the lender being re-classified as a private bank in March 2019.