The Centre has asked the officials to hasten the privatization process of at least 4 primarily state-owned banks within FY 2020-2021, according to two officials familiar with the discussions.
Read on to find out which are these banks and much more…
Privatization Of the Banks Might Be A Challenge!
“The process of privatizing the banks has started,” said one government source with direct knowledge of the matter on the condition of anonymity as the discussions are private.
Earlier this month, Prime Minister Narendra Modi’s office wrote a letter to the Ministry of Finance asking it to speed up the process of privatizing the lenders in the current financial year, which ends in March 2021, the person said, adding that some consultations in the matter had already taken place.
According to the sources, the 4 banks involved in this process wherein the Indian government owns majority stakes through direct and indirect holdings are Punjab and Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI Bank.
The sources also highlighted that the government’s timeline is tight and competitive which might be a challenge considering the current market conditions.
The challenge is selling the stakes is that the lenders are already under a huge burden of bad loans, which might force it to get extended in the next fiscal year, banking and government officials have previously said.
More consultations would be held before the process proceeds, said another government official, involved in the stake sale push.
Why Is Government Looking Into Privatising?
Currently, India has around 12 Public Sector Banks (PSBs). Additionally, the government owns 47.11% in the IDBI Bank while state-owned Life Insurance Corp (LIC) owns 51%.
Amidst the fall in tax collections due to economic whirlpool caused by the COVID-19 pandemic, the Government is trying to push the government-owned lenders into privatization in a bid to raise funds for budgeted spending.
This move also comes at the time when the surging bad loan growth is forcing the government to fund the state-owned lenders in order to pull them out of the ditch.
The sources added that some officials have advised that the government restructure these banks before privatization to cut down their losses by offering voluntary retirement to surplus staff and closing loss-making domestic and overseas branches to make them more attractive assets, the sources said.
Click here to know more about the need for the privatization of banks in India.