Finance Minister Nirmala Sitharaman announced in her Budget speech that the government has budgeted Rs. 1.75 lakh crore from stake sales in public sector companies and financial institutions, including two PSU banks. The names are recommended by the NITI Aayog, which is then examined by an inter-ministerial group of officers, followed by a group of ministers, before being approved by the Union Cabinet.
Despite the fact that the Finance Minister did not name the two banks, they might be one of these three. It would be the first time in Indian banking history that a public sector bank was privatized.
Why is the government looking for Privitisation of Banks?
Privatization of banks simply means that the central government is less engaged and direct in the day-to-day operations of the banks. In effect, the federal government's majority interest in the PSB will be offloaded in favour of private investors. For banks, this means increased market competition and reduced to minimal financial reliance on government assistance. For a long time, it has been widely reported that some state-owned banks are not working to their full potential due to a variety of factors, and are largely reliant on financial assistance from the central government.
Instead of continuing to put pressure on banks to re-capitalize them at regular intervals, the central government could better use those funds for poverty alleviation and other public programmes if it pursued a privatisation campaign.
List of Govt banks likely to be privitised
According to sources close to the situation, the Bank of Maharashtra and the Central Bank are the top two possibilities for privatisation, though the Indian Overseas Bank may also be considered this year or later.
Furthermore, United India Insurance, which has a superior solvency ratio than the other two general insurers, may be picked as a candidate for privatisation, according to sources. However, financial sector experts argue that Oriental Insurance, which has the lowest solvency ratio of the three, maybe preferred because it has no international activities and may find it easier to attract a private investor.
NITI Aayog had targeted the six state-run lenders that were not involved in the merger attempt a few years ago.
Only six banks are eligible for privatisation:
- Central Bank
- Bank of Maharastra
- Punjab and Sind Bank
- Bank of India.
This list was used to make the decision. According to sources close to the situation, the Bank of Maharashtra and the Central Bank are the top two possibilities for privatisation, though the Indian Overseas Bank may also be considered this year or later.
It was of the opinion, however, that the better-off entities would attract more interest, resulting in IOB and Central Bank being shortlisted. The two companies are worth roughly Rs 44,000 crore based on current share prices.
These two names have been nominated for privatisation by the government's think tank, NITI Aayog. According to the Times of India, the Bank of India (BoI) could potentially be a prospective sale target.
When it comes to privatisation, the terms Bank of India (BoI), IOB, Bank of Maharashtra, and Central Bank come up frequently. We will have to wait for the official announcement to find out which banks will be privatised.
What happens after privatization of Public Sector Banks (PSBs)?
The new administration of the private firm after privatisation is typically believed to be profit-oriented. In addition, once privatised, management will work to eliminate nonperforming assets (NPAs). There is a possibility that banks would be pushed to rethink their retail business. The danger is that once privatised, there will be opportunities to keep lucrative branches while eliminating others that are suffering. This may necessitate a full re-evaluation of the bank's personnel resources. Customers can expect a privatised bank's baking services to improve as a result of competition from other private sector banks.