The Central Government led by Prime Minister Narendra Modi is contemplating for privatisation of the nationalised banks for quite some. It was not surprising when the decision was announced by the Union Finance Minister, Nirmala Sitharaman, while presenting the budget recently. She also made it crystal-clear that the government’s intention is to fine-tune the performance of the public sector banks and the privatisation would only augur well for their long-term growth. She was also not averse to informing that henceforth the private banks would take care of the government-related work like the Income Tax and Pension scheme, instead of the nationalised banks, speaks volume of the government’s seriousness in facilitating the process.
Importantly, the Prime Minister stressed the need for activating the private sector by dispensing with the monopoloy of the Babudom era in the past. Mr Modi did not miss the opportunity to remind his government’s promise to achieve the five trillion dollar economy target three years from now-onwards, in spite of the Covid-19 pandemic crippling the economy. The Prime Minister made his intentions clear, after he recently remarked that his government has no business to be in business and his administration is committed to privatising all public sector undertakings, exceptions apart, in four strategic sectors. Though, Mr Modi would not deny his duty to support enterprises and businesses, but what he perceives is that it is not his government’s responsibility to take the mantle of the public sector organisations on their shoulder. He is perhaps right in stating that the public sector units should not be run just because of legacy, as many public sector undertakings are incurring a huge loss and supported by tax-payers’ money, let alone their accountability and maximisation of output. He was also apt in reminding the people while speaking at a webinar on privatisation organised by the Department of Investment and Public Asset Management that the government has many underuitilised and unutilised assets and 100 assets would be monetised to garner Rs 2.5 lakh crore.
It is pertinent to note that the nationalised banks have undergone a significant change in the last few years after the government took the initiative for merger of some public sector banks, which resulted in the reduction of banks to 12 in April, last year from 27 in March, 2017. It is being reported that the government is planning for the privatisation of Bank of India, Indian Overseas Bank, Maharashtra Bank and the Central Bank. Of the four banks, the government would find it easier to accomplish the task of Maharashtra Bank with only 13,000 staffers on payrole, whereas it would be a cumbersome task for Bank of India with about 55,000 regularised employees. The government is aware that privatisation of banks is not an easy proportion, considering the hurdles it is expected to face from the trade unions.
The government would obviously attempt to sell the weak banks like the Indian Overseas Bank with about 26,000 permanent employees and the Central Bank with 30,000 staffers. However, finding buyers for such banks would be an arduous task for the government. However, bids would not be restricted to Indian buyers as foreign banks have been present in India for a long time. It is glaringly evident that the proposed reforms in the banking, financial services and insurance (BFSI) sector are fraught with challenges, thereby implying that some of these concrete measures would take a long time for its completion, according to some banking experts.
The Union Finance Minister during here budget speech announced the government’s move to privatise two public sector banks and one general insurance company. Ms Sitharaman emphasised the word, “privatise” instead of “divest”. She also made it known that IDBI Bank and the IPO of LIC is also weighing in the mind of the government. One option that can be considered is the ‘bad bank’ route preceding the privatisation, says a banking official, who preferred to speak on a condition of anonymity, that once the Non Performing Assets are transferred to a holding company and managed by an Asset Reconstruction Company, the accounting books of the public sector banks would look attractive to the buyers. He is quite right, as it is imperative on the part of the government to ensure that the new buyers are assisted to the maximum extent possible.
The government and the LIC have a combined shareholding of 94.7 per cent in IDBI Bank, and hence, it is planning to privatise the bank as early as possible by incorporating necessary amendments. There is no iota of doubt that the nationalised banks in general have struggled in terms of asset quality and capitalisation, compared to the private sector banks. For instance, the NPA ratio of India’s banks stood at 8.5 percent, of which for PSBs it was 11 to 11.5 per cent, while for private sector, it was 4 to 5 per cent. Recently, CRISIL has recorded in its ratings that capitalisation of nationalised banks has been weaker than private sector banks, and is estimated to be Rs 2.6 lakh crore. The public sector banks are, however, confident of their resource mobilisation of deposits and the trust factor they earned from a section of of investors.
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