The Hindu Business Line : Banks fancy private sector over PSUs for investments

A comparative analysis of the banking sector's exposure in shares and bonds of PSUs and private sector companies reveal that over the past 10 months, banks have reduced exposure in PSUs while increased their investments in the private sector.

According to the latest Reserve Bank of India (RBI) figures, the banking sector's total exposure in PSU shares and bonds fell by 12.07 per cent over a 10-month period from Rs 49,918 crore on March 19, 2004 to Rs 43,889 crore on January 21, 2005.

The story however, is different regarding the private sector where investment in shares and bonds of companies by the banking sector increased by 19.63 per cent from Rs 35,298 crore on March 19, 2004 to Rs 42,230 crore on January 21, 2005.

A segment-wise comparison in investments in equities shows that banks' investments in equities of PSUs have increased from Rs 1,272 crore in March 2004 to Rs 1,708 crore in January 2005 while in case of private sector companies, the figure has increased from Rs 7,395 crore to Rs 10,144 crore over the same period.

Interestingly, while in case of shares the overall investment has increased both for PSUs as well as private companies, in case of bonds, the trend is the opposite.

The banking sector's investment in PSU bonds in March 2004 stood at Rs 48,646 crore which has gone down to Rs 42,181 crore in January 2005.

On the other hand, investments in private sector bonds have increased from Rs 27,903 crore in March 2004 to Rs 32.086 crore in January 2005.

Explaining the trend, Mr Prithvi Haldea, Managing Director of Prime Database, told Business Line that "at a macro level it is a reallocation of funds from the public sector to the private sector, one of the reasons being that there are so many success stories in the private sector right now. "

"Also, another reason is that there are less PSU equity available compared to private sector equity and for banking companies, the preferred route to obtain equity exposure is normally through the IPO."

Mr Haldea further pointed out that over the last seven to eight months, the Government had been consciously encouraging the banking and financial sector for increasing their exposure in the equities market and the outcome could probably be a fall-out of that policy as well.

However, the Managing Director of rating agency ICRA Ltd, Mr P.K. Choudhury, has a different explanation. According to Mr Choudhury, it may not be a very conscious move for the banking sector as a whole to limit exposure to PSUs and increase exposure in private companies.

"May be the investment opportunities that the banking sector availed have resulted in these changes. However, now it seems that the bull run is not riding alone on financial performance and the Sensex is rising disproportionately to fundamentals," he said.

"Thus in this situation one has to be careful about linking his expectations of capital appreciation to the growing investments by FIIs," Mr Choudhury said.

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