Govt Will Sell These 4 PSU Banks To Private Firms By End Of 2020; How Will This Help?

As per the reports, PMO has asked for speeding up the process of decreasing the government stakes in at least four primarily state-owned banks within this fiscal year.

Privatization Of PSU Banks

Before this, the government has come up with a list of four PSU banks in which it directly or indirectly holds majority stakes.

In these banks, which included Punjab & Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI Bank, the government wants to disinvest equity. 

Basically, the government is expecting to generate government some revenues with this move, although it is severely hit by the coronavirus crisis, according to the senior officials.

Further, the center wants to overhaul the banking sector and also wants to propel the privatization of banks and other state-run companies.

This will help in raising funds for budgeted spending as they are facing a fall in tax collections due to the economic downturn caused by the pandemic.

In the same regards, the prime minister’s office wrote a letter to India’s finance ministry at the start of this month further asking to speed up the process of privatizing these banks by March 2021.

So far the country has more than a dozen public sector banks in which the government owns 47.11%, on the other hand, the state-owned insurance behemoth Life Insurance Corp owns a 51% stake.

Why Would This Happen?

Apart from this, the government is anticipating a surge in bad loan growth at the lenders, this could also force the government to use fresh funds to bail out state-run lenders in the future.

In the coming days, the banking industry is anticipating a rise in non-performing assets (NPAs) dues to moratoriums, massive job losses amid recessionary economic conditions.

Although, it is going to be a challenging task to sell stakes in these lenders as these banks are already burdened with bad loans, according to the officials.

To make them more attractive assets to the buyers, it is also advised by some officials to restructure these banks before privatization to reduce their losses by providing voluntary retirement to surplus staff and also closing loss-making domestic and overseas branches.

With the Covid-19 virus spread, plunging tax revenues, expensive subsidy schemes have given more incentive to the government to make a push for privatization of state-run banks and companies in order to raise funds for budgeted spending in a bid to support the virus-battered economy.