The officials of Prime Minister Narendra Modi’s office has asked to speed up the process of reducing the government stakes in four primarily state-owned banks within the current financial year.
The government owns majority stakes through direct and indirect holdings from lenders such as Punjab & Sind Bank, UCO Bank, IDBI Bank, and Bank of Maharashtra.
The government is attempting to push through reforms in the midst of the pandemic, a few officials have advised the government to restructure these banks before privatization to cut down their losses by closing loss-making domestic and overseas branches to make them more attractive assets and offering voluntary retirement to surplus staff.
For the past few years, the Indian government has been selling stakes in state-owned banks. The World Bank had reported that it was not the same in other middle-income countries except China.
A study conducted by Ata Can Bertay and others, observed 475 privatization events involving commercial banks across 70 countries during 1995–2017. It stated that the number of such events increased from 11 a year in the late 1990s to 27 after the 2008 financial crisis.
The findings also revealed that the phenomenon remained stable in high-income countries and was uncommon in low-income ones. China and India were the “driving force” behind the growth of bank privatization in the 21st century.
The study states that earnings from privatization went up from an average of $6.8 billion a year to $26.8 billion in the period. The Indian government alone gained $11.5 billion through the sale of a stake in 19 public sector banks in 2017 which is equivalent to 2.2% of annual revenue.
According to a study, two transactions worth $600 million a year were recorded between 1995 and 2010 in India. After the financial crisis, China moved from no transaction during 1995-1999 to four deals a year
Though the number of bank privatization events has risen globally, the average stake sold per deal has decreased to 12 percent from 21 percent before the financial crisis.
The study notes that banks chosen to be privatized were constant underperformers and that 92 percent of all transactions were made through sale in the domestic capital market. Banks expanded their workforce after the privatization proceedings, and extended higher credit. There was no notable jump in non-performing loans for such banks.
