A new wave of privatisation of government banks is going to take place in the Indian banking sector. The government is going to privatize more than half of its state-owned banks making the number of them from 12 to 5. “The idea is to have 4-5 government-owned banks,” said one senior government official reportedly in the news.
The plan is being formulated by Cabinet, which after being approved, will be carried out.
The plan is to raise money from non-strategic sectors in times when the country’s economy is shattered by Coronavirus pandemic. This could be boon in lifting the economy again. The market conditions are not favourable, as banks are facing a large number of bad debts, so the privatisation is not going to take place in this financial year.
It’s true that Public sector banks play a major role in building rural banking systems in the country, and overall helps in the development of the nation but their inefficiency can lead to systematic risk in the banking sector.
According to the International Monetary Fund’s 2017, Global Financial Stability Report, in more than a third of the Indian banking system, provisioning needs for bad debts would amount to three years of net income. Among emerging economies, asset quality in India is the worst, after Russia.
Firstly, they will sell majority stakes in companies like Bank of India, Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab & Sind Bank, which will open doors of opportunities for private buyers.
However, the state holds to privatise major government companies like State Bank of India, Punjab National Bank.
The finance ministry declined to comment on the matter. Government financial committees and the Reserve Bank of India advised the states to not have more than five-state owned banks.
“The government has already said that there will be no more mergers (between state-owned banks) so the only option for them is to divest stakes,” a senior official at a state-owned bank said.
Last year the government had merged ten state-owned banks into four.
Will this move boost the country’s disrupted economy or not is still a question, which will only be confirmed after the plan is laid off.