Punjab National Bank, Bank Of Baroda Will Be Sold To Private Firms? Privatization Of PSBs Start…

The government has finally taken a ‘right’ step towards the long-awaited reforms needed in the banking sector. After the release of Union Budget 2021 on Monday, the Finance Minister, Nirmala Sitaraman revealed in her budget speech the government’s plans of privatizing two PSU banks and one general insurance company in the next financial year.

The decision was expected since the merger of 13 public sector banks into five which was done last year. The announcement also mentioned that the government is also planning to strengthen the credit flow of PSU banks by recapitalizing Rs 20,000 crore in them.

Which Banks Are Going To Be Privatised?

Initially, the government is going to carry out this plan on a pilot basis, on two PSBs, and the analysts agree with it. The Finance minister has not yet revealed which banks and how many stakes are going to be involved in the divestment. However, the names of some PSU banks have surfaced.

Though the non-merger banks have got a lot of capital infusion from the government, the analysts feel that the banks that were involved in the merger will be most likely to be chosen. Among the banks that were not involved in the merger, Punjab and Sind Bank and Bank of Maharashtra have grabbed the spotlight. Bank of Baroda and Punjab National Bank are the potential candidates in the latter category.

Why Are These Banks Highlighted?

Among the non-merger banks, both Punjab and Sind Bank and Bank of Maharashtra may be considered since they have got financial support from the government to repay their debts. The other banks excluded from the merger are unlikely to go privatization because of poor investment demand, said Anil Gupta, vice-president of ICRA Limited.

Speaking of the support, BoM had rectified 7.69% of its non-performing assets because of Rs 7,800 crore funded by the government in FY18 and FY19. Besides, Punjab and Sind bank must have improved its gross bad loan ratio which was at 5.87% when it received Rs 5,500 crore in this financial year.

Moreover, analysts believe that BoB and PNB are better choices since the merger of good quality companies has improved their structure. Deven Choksey, MD of KR Choksey Shares & Securities Private Limited also said that these banks will attract more investors.  

What Are The Reactions To This Decision?

The Reserve Bank of India has supported the initiative since the merged banks will be benefited as their regional network will be expanded. For instance, the influence of the United Bank of India in the eastern region will be expanded to the northern and central regions as well because of the vast network of PNB.

However, bank unions like the All India Bank Employees’ Association (AIBEA) are thinking otherwise. The general secretary of AIBEA, C.H. Venkatachalam, said that the union will carry out agitational programs and strikes to oppose the government’s proposal of privatizing the banks.

On the other hand, the stocks of private banks surged after the budget announcements done by the Finance minister on Monday. The stocks of ICICI bank rose by 13%, State Bank of India by 11%, BoB by 8.6%, and that of PNB went up by 7%