Thursday, March 20, 2008

PSU Department Faults Directive On Bank Deposits

NEW DELHI: The department of public enterprises (DPE) has sought a clarification from the finance ministry on its recent directive asking all central public sector enterprises (CPSEs) to invest 60% of their surplus fund in public sector banks.

“This is like infringement on the financial autonomy of CPSEs. On one hand the government is talking about a level-playing field for all companies by taking away the support under the purchase preference policy from the PSUs, whereas on the other hand, it is trying to regulate the financial decisions. We have asked for a proper clarification on why is it necessary for CPSEs to park their money in PSBs,” a senior official in DPE said.

The finance ministry had recently sent a directive to all ministries, including DPE, asking the companies under them to deploy 60% of their funds with PSBs. As the finance ministry cannot ask CPSEs directly about their financial management, it has asked DPE, the nodal department, to issue a directive in this regard.

CPSEs have a total reserves and surplus of around Rs 4 lakh crore. The proposal, if implemented, would result in PSBs getting nearly Rs 2 lakh crore of that. At present, CPSEs have invested around Rs 1 lakh crore with PSBs while the rest has been invested in other debt instruments.

So, the recent move would result in the diversion of about Rs 1 lakh crore from private banks and other debt funds to PSBs. Funds invested in private banks and other debt instruments get them relatively higher returns of 2-3%.

This is for the first time that the government has directed PSUs on the amount of their investment. The earlier guidelines have specified the nature of investments to make it risk-free. However, no necessary obligation of investment had been put on CPSEs ever.

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