Investors Cheer For Privatisation Of Govt Banks; Stock Price Of These 4 Govt Banks Rise By 20%

Stock prices of 4 government banks rose by 20% on Tuesday at the BSE after a Reuters report named those banks. According to the report the Indian government has already shortlisted the banks to be handed over to private firms. The move is intended to sell state assets and drive government revenues.

Those shortlisted are Bank of Maharashtra, Bank of India, Indian Overseas Bank and Central Bank of India.

Behind The Centre’s Decision

The boldness of the reforms is driven by economic contraction owing to the pandemic. 

The centre also wants to renovate the current banking sector plagued by non-performing assets, the number of which is expected to increase when banks identify troubled loans during the pandemic as ‘bad’.

Stock Market is Bullish

After news broke, shares of Bank of Maharashtra were up 20% upper circuit limit at Rs 19.10. Bank of India shares were up 12% at Rs 65.90, Indian Overseas Bank rose 16.36% to Rs 12.80 and Central Bank saw a rise of 13.13% to Rs 15.77.

Any 2 of these banks will be picked for the sale set to begin in FY22 that starts in April. 

However the actual privatisation process could take about half a year to begin proceedings. 

Resistance From Bank Unions

The Modi administration was warned that its decision to turn over state-run giants to the private sector would not be received well by the hundreds of thousands of people the banks employ. 

On Monday a 2-day strike was declared by bank staffers.

Bank of India employs 50,000 people, Central Bank is 33,000 strong, Indian Overseas Bank has 26,000 employees and Bank of Maharashtra workforce is 13,000 strong.

Which Bank To Go First?

Bank of Maharashtra with the smallest workforce of the lot could be chosen to be privatised first as the government is looking to put up mid to small sized banks up for sale first, in an experimental attempt. 

However some economists say that selling small banks would not help much by way of raising spending resources. They suggested consideration of bigger banks like Punjab National Bank or Bank of Baroda.

SBI remains safe as the government retains its majority stake. The status of India’s largest lender stays strong as the government intends to use it as a vehicle for initiatives like expanding rural credit.

It could happen that the government backs out at the last minute from privatisation given the volatility of factors such as employee numerical strength, trade union imposed pressure and political ramifications.
9 Bank Employee Unions Join Forces Against Selling Govt Banks To Private Firms, learn more.