The government has decided to privatize four Public Sector Undertakings by the end of this financial year. A list of four PSU’s has been drawn by the government, namely, Punjab & Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI Bank, in which it directly or indirectly holds majority stakes, and wants to disinvest equity. The Reuters was told that this decision is made to generate government revenue, which is severely hit during the coronavirus crisis.
The Prime Minister of India had also written a letter to the Ministry of Finance to speed up the process of privatization. Reuters had reported that the government intended to keep stakes in only five PSU banks, and privatize the rest of them to raise funds and recover the financial health of the state-owned banks.
In the past few years, the Indian banking system has seen many mergers and acquisitions. In March 2020, the Union Cabinet had approved the merger of 10 public sector banks into four, opening the way for the largest integration among state-owned lenders. Punjab National Bank acquired the Oriental Bank of Commerce and the United Bank. Canara Bank took over Syndicate Bank, Union Bank of India took over Andhra Bank, and Corporate banks, Indian Banks was to be consolidated with Allahabad Bank.
Previously in 2017, five associate banks and Bhartiya Mahila Bank were consolidated into State Bank of India, and in 2018, it was decided to amalgamate Bank of Baroda with Vijaya Bank and Dena Bank. The government also permitted Life Insurance Corporation of India to take over 51 percent equity in IDBI Bank Ltd., which technically privatized it. The banking system, under a burden of NPAs, has also been thinking over the possibility of bad banks. The Indian Banks Association (IBA) had presented a proposal to the finance ministry and the Reserve Bank of India at the beginning of this year to set up a ‘bad bank’ for around Rs 75,000 crore worth of non-performing assets.
The sources revealed that while the government is yearning to push through reforms amid the pandemic, some officials have suggested the government to restructure these banks before privatization to cut down their losses by giving voluntary retirement to surplus staff and closing loss-making domestic and overseas branches to create more attractive assets.
