The Finance Minister Nirmala Sitharaman had last year decided to merge 10 public sector banks into four banks, thereby strengthening the infrastructure of the banks, so that they can meet international standards.
With the mergerisation just successfully implemented with the start of this financial year on April 1, the FM now has plans to privatise one or more state-controlled banks, in attempts to make them stronger.
Why Privatise State Run Banks?
After a recent merger involving the amalgamation of 10 state-run lenders into four banks, the Niti Aayog, the policy think tank of the government, has now suggested the government to implement suggested the government to long term private capital into the banking sector.
This means that it has suggested the finance ministry to privatise one or more state-controlled banks.
In fact, we have reports that a selected group of top government officials have already started talks on this proposal.
It is being reported that the main purpose behind this plan is to put a hold on future bailouts by using taxpayers’ money.
As of now, even though it is not 100% final but the government is examining the possibility of privatising Punjab & Sind Bank, Bank of Maharashtra and Indian Overseas Bank.
It is to be noted that as of now, these banks are not part of the existing consolidation programme.
Plans Still in the Hold
Niti Aayog has also recommended providing banking licences to a few select industrial houses with clear instructions that they don’t lend to group companies.
There have been some discussions on the de-nationalisation of some banks, but there has been no decision on it yet.
These discussions are on hold as the Bank Nationalisation Act has to be amended before going ahead with the next step.
According to the RBI, in order to grant universal banking licences, large industrial houses are allowed to infuse up to 10% but still do not qualify eligible for operating banks completely.
Sitharaman had just last month announced the Centre’s intent to open up all segments of the industry, including strategic sectors, to private capital.
She had also mentioned the fact that there would only be a maximum of 4 public sector companies in the strategic sectors.