New Rules Nudge Gujarat SPSUs To Drop Ad Hoc Finance Habits

It has introduced a set of financial rules for its State Public Sector Undertakings (SPSUs). The reform is meant not just to tidy things up, but to build in clarity, discipline, and long-term thinking at the core of how these companies manage their money.

Issued by the state’s Finance Department, the new rules are meant to instil financial discipline across a range of decisions, whether it’s putting in more capital, declaring dividends, buying back shares, issuing bonus stock, or splitting shares. The idea is to encourage professionalism in money matters and ensure SPSUs work with a sense of fiscal direction.

An official memo from Aarti Kanwar, Secretary (Economic Affairs), Finance Department, spells out the base expectations. SPSUs must pay an annual dividend of at least 10 per cent of Profit After Tax (PAT) or 4 per cent of net worth, depending on which is larger.

Financial firms like NBFCs face a tougher requirement, that is 30 per cent of PAT. While these numbers are minimums, the state urges healthier PSUs to exceed them whenever feasible.

Stricter Buyback Criteria

Share buybacks are allowed only for PSUs holding more than Rs 1,500 crore in uncommitted reserves, and whose shares have traded below book value over the last six months. Net worth must also exceed Rs 3,000 crore. This is to make sure that only solid, cash-rich firms use buybacks to balance capital.

Shareholders To Get Rewarded

When a company’s free reserves grow to over 20 times its paid-up share capital, it will now be expected to issue bonus shares. According to the government, this will not only reward shareholders but also enhance market valuation of the shares.

Stock Splits To Improve Access

The state government wants companies — the market price of whose stock has been at least 150 times their face value for the past six months — to consider splitting shares. The idea is to make stocks more accessible to retail investors, and to enhance liquidity.

Other Key Points

• All SPSUs must formally incorporate these guidelines into their board-level decision-making
• Any change in the capital structure of an SPSU will now require prior approval from the Finance Department
• These norms will not apply to loss-making SPSUs or those under liquidation

Important Clarifications

• For unlisted SPSUs, rules related to buybacks, bonus shares, and share splitting are not mandatory
• For holding SPSUs, all assessments must be based on standalone financials
• Any SPSU unable to comply with these norms may apply to the Finance Department for an exemption

The Ultimate Goal

Through these fresh guidelines, the Gujarat government wants to move SPSUs away from making ad hoc financial calls and missing deadlines. The push is for timely dividend payouts and capital moves that are structured, consistent, and responsive to market realities in order to bring in sharper focus and improved governance.