Proceeds from national investment fund to be used to recapitalise PSU banks

NEW DELHI: The government has decided to use the proceeds from disinvestment in public sector companies for capitalisation of state-run banks, insurance companies and for subscription of shares of state-owned firms to maintain its 51% stake, a plan it wants to introduce from 2013-14.

The decision was taken at the meeting of Cabinet Committee of Economic Affairs (CCEA) on Thursday in order to align operations of National Investment Fund (NIF) and improve the disinvestment policy.

The NIF corpus on August 2012 stood at Rs 1,814.45 crore, garnered from the disinvestment proceeds of Power Grid Corporation of India and the Rural Electrification Corporation Ltd which took place in 2007-08.

So far, NIF money was used to meet the capital expenditure needs of selected social sector schemes. The CCEA has decided that disinvestment proceeds from 2013-14 will be credited to the existing 'public account' under the NIF head, which will remain there until withdrawn or invested for approved purposes.

The CCEA defined that NIF will be used for subscribing to shares being issued by the central public sector enterprise (CPSE) including public sector banks (PSBs) and public sector insurance companies, on rights basis to ensure government's 51% ownership.

The government will also use NIF funds for preferential allotment of shares of public sector companies to maintain its 51% stake so that companies can raise money through the markets to meet their capital expenditure needs.