The sudden surge in the pandemic has caused a loss of momentum in the government’s privatisation exercise, but it is still a priority.
In this context, the government will need to be careful to avoid further pitfalls, and here is a proposed strategy blueprint for that.
What are the elements to be factored in?
Independent authority - Transfer the entire government stake in the relevant PSB to a separate quasi authority like SUUTI (Specified undertaking of the Unit Trust of India).
This will signal a clear intent to divest at market prices once the bank’s financial health improves.
This would also remove the vigilance overhang that affects decision-making.
Governance - In addition to reputed independent directors, strengthening the bank board is essential.
This should bethrough addition of eminent banking talent from the industry.
Also, making the senior bank executives accountable for time bound implementation of revised business plans is needed.
Capitalisation by anchor investor - Fresh capital infusion by an anchor investor, selected amongst eligible bidders via open auction can be done.
This is to give it a significant minority stake, thereby diluting overall government stake.
The selection bid mechanism could be similar to erstwhile SEBI screen-based auctions that involved FPIs/FIIs placing premium bids for winning government and corporate debt limits.
Share sale - There will be no stake sale to the private anchor investor.
Over the next few years, with regular capital infusions, the anchor investor will creep up to the desired regulatory comfort level.
Divestment target and dividends - The capital receipts to the exchequer will accrue vide subsequent sales in driblets in the open market, post restoration of the banking house.
The government, however, continues to earn revenue receipts to meet budgetary priorities.
This will be through regular and even one-time structured dividends via SUUTI, which is expected to retain majority holding in the near future.
A planned dividend history also benefits the share price, thereby eventually yielding better price as SUUTI pares down its holding.
Short-run divestment shortfalls can be met by quickly disposing of marginal SUUTI/government stake in blue chips.
Generating value from unlisted holdings like NSDL and SHCIL is another step.
Fast-tracking smaller PSU privatisation that are far less complex than PSB divestments which attract scrutiny at every step can be taken up.
Stakeholder welfare - The anchor investor brings in much needed capital for growth besides supporting the bank improve its market positioning, taking along all stakeholders.
