Government directed Cash Rich PSUs to issue Bonus Shares to balance Paid-up Capital & Reserves

The Union government directed cash rich PSUs to issue bonus shares to bring about a proper balance between paid up capital and accumulated reserves. The move is aimed at improving market image of state run firms.
The Department of Public Enterprises (DPE) in an internal note mentioned that there are a number of Central Public Sector Enterprises (CPSEs) which have reserves and surpluses more than three times of their paid up capital.

Reserves and surpluses  in excess of paid up capital does not reflect equitable capital base of the company. Referring to a 1995 instructions on bonus shares, the DPE directed concerned administrative ministries are requested to direct the CPSEs under their control to examine and approve the bonus share proposals.

In 1995 the DPE had issued instructions that such PSUs should immediately consider the scope of issuing bonus shares to Government of India and other existing shareholders. The issue of bonus shares helps in bringing about a proper balance between paid up capital and accumulated reserves.

Also issue of bonus shares helps elicit good public response to equity issues of the public enterprises and helps in improving market image of the company, as per guidelines of DPE.

The DPE note also mentioned that PSUs that large reserves will be allowed to make any public issue only after examining the scope for capitalising a portion of the reserves.