Govt all set to revise CPSE capital restructuring guidelines

CPSE restructuring: The government is all set to revise its 2016 guidelines on the capital restructuring of Central Public Sector Enterprises to revise guidelines related to dividend payment, bonus issues, and share buybacks, among others. This would be yet another move to make sure that the investment in CPSEs is optimally deployed and the surplus funds are put to efficient use by these enterprises.

The amendments are coming as CPSEs have strengthened their balance sheets and witnessed significant growth in market capitalization, an official said. "As the CPSEs have now become more financially strong, it is now time to reconsider the capital restructuring guidelines issued," he said.

The Ministry of Finance will amend the guidelines later this month, another official aware of the matter, said.

Background of Guidelines issued in 2016

The original guidelines were issued in May 2016 by the Department of Investment and Public Asset Management, which is empowered with the objective to effectively manage government investment in CPSEs. They provided that the CPSEs who have no optimal capital deployment plans shall deploy their surplus funds in a professional manner.

These included, among others, the minimum annual dividend payment requirement of 30% of PAT or 5% of net worth payable by CPSEs and share buyback by CPSEs having a net worth of at least Rs 2,000 crore with cash and bank balance above Rs 1,000 crore.

These laid down that CPSEs having reserves and surpluses equal to or exceeding 10 times their paid-up equity share capital had to issue bonus shares. Also, CPSEs for whom either the market price or book value of shares was more than 50 times their face value were to split their shares to this effect.

Financial Impact and Government Revenue

These guidelines are aimed at ensuring that CPSEs with considerable cash balances return value to shareholders for sustaining investor interest in them. The combined market capitalisation of the CPSEs, including banks and insurance companies, jumped over 500 percent in the last three years, from Rs 15 lakh crore to over Rs 58 lakh crore.

The equity holding of the government has also risen four-fold, from Rs 9.5 lakh crore as of January 2021 to Rs 38 lakh crore. In the 2024-25 fiscal so far, the government has garnered Rs 10,604.74 crore in the form of dividends from CPSEs. For the current fiscal, the government has budgeted to garner Rs 56,260 crore in dividends from public sector enterprises, higher than Rs 50,000 crore in the previous year.

And with the revised guidelines all set to be released by the government, writing is on the wall that this would ensure CPSEs continue to contribute in a big way to the nation's financial health with efficient operations.