PSUs to feed state-run banks

PSUs to feed state-run banks
http://timesofindia.indiatimes.com/Business/India-Business/PSUs-to-feed-state-run-banks/articleshow/4273299.cms
17 Mar 2009, 0000 hrs IST, Sanjay Dutta, TNN

NEW DELHI: The government has extended by a year an order asking profitable state-run entities to park their surplus funds with public sector banks to ensure that the financial institutions have enough cash at a reasonable cost which they can lend at the present reduced rate of interest through the economic slowdown. TOI had first reported on June 26 last year that the government had ordered PSUs to park funds, or at least 60% of the corpus, with public banks. It came in the wake of debt waiver and fresh loans for the farm sector were announced.

The banks had said raising cash for such schemes were prohibitive as they had to borrow at a higher cost as well as compete against private banks and offer higher interest rates for securing deposits and accounts from public sector units. The order was issued for a year. But with the economic slowdown continuing, it has been extended to help banks to maintain lower lending rates for all borrowers. With the order in place for another year, PSUs are likely to renew their deposits with the same bank. This will ensure that the cost of funds remains low for banks and provides leeway in reducing lending rates further. For PSUs, however, the extension will mean loss in additional income for another year to entities such as flagship explorer Oil and Natural Gas Corporation, which alone parks some Rs 17,000-18,000 crore in such deposits and wrestled about Rs 400 crore extra interest annually by securing higher rates through bidding. The interest rates offered in bids were about 200 basis points higher than their prevailing market rates. Profitable PSUs such as ONGC, generation utility NTPC, equipment manufacturer BHEL, steelmaker SAIL and other entities together are estimated to have over Rs 100,000 crore surplus cash. They used to keep this in term deposits of a year or more with banks chosen through bidding -- whichever offered higher interest.