Public Sector Banks Privatization - Which Bank is in the List ?


Post Top Ad

Monday, 15 February 2021

Public Sector Banks Privatization - Which Bank is in the List ?

Post announcement of privatization of two public sector banks in the budget 2021, the name of the proposed banks are not yet announced. There are lot of guessing going around on Social Media and  experts have their own take on the subject, still there is no clear indication on Two public sector banks (PSBs).

Some people say the six PSBs that were left out of last year’s mega-consolidation exercise could be on the government’s radar for privatization. 

Others opine it could be two of the five large PSBs into which eight mid-sized PSBs merged in the last two years. 

There could also be another dimension – the government may choose a combination of the aforementioned two possibilities. 

Secretary, Department of Financial Services, has said that all PSBs are eligible for privatization, in all likelihood, State Bank of India (SBI) will be kept out of this exercise as it the only government-owned bank that is classified as a domestic systemically important bank (D-SIB). 

The other two D-SIBs – ICICI Bank and HDFC Bank – are private sector banks. 

Since 2017-18 and till date, the government has infused capital aggregating ₹2,56,943 crore. Of the recapitalisation provision of ₹20,000 crore for FY21, ₹5,500 crore has been provided to Punjab & Sind Bank. 

The balance ₹14,500 crore has not yet been allocated. 

It is observed that if the government has to sell a significant stake in PSBs, it will also need to have the Reserve Bank of India (RBI) on board because of the regulations relating to (cap on) single party shareholding in banks. 

FM once said “For India’s aspirations and developmental requirements, we may possibly need 20 banks of the size of State Bank of India (SBI). “For that, we need to create more and more strength for the existing public sector undertakings, scale them up and make sure that they professionally run themselves.” 

Which PSBs could be privatized? 

Some analysts posit that the government may leave out the five large PSBs – Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank – from the privatisation exercise as, post-consolidation, they are currently in the midst of stabilising their operations and have just started to reap the benefit of cost-savings. 

Moreover, going by the FM’s statement that India may need 20 banks of the size of SBI, the aforementioned banks are likely to remain in the public sector. Maybe, a 5-10 per cent disinvestment of government stake could happen in these PSBs a year or two down the line. 

Hence, the attention turns to the six PSBs – Bank of India (BoI), Bank of Maharashtra (BoM), Central Bank of India (CBoI), Indian Overseas Bank (IOB), Punjab & Sind Bank, and UCO Bank – which were not part of the mega-consolidation exercise that happened last year. 

Why Not Bank of India (BOI) ?

Since BoI is a fairly large PSB with an international presence (global business mix of ₹10,26,866 crore as of December-end 2020), the government may not be keen on privatizing it. 

Why Not UCO bank ?

UCO Bank, too, is unlikely to be privatised as two Kolkata-headquartered PSBs have already been amalgamated (United Bank of India with PNB and Allahabad Bank with Indian Bank). So, the Centre may want to retain at least one PSB with its headquarters in East. 

Why Not Punjab & Sind Bank ?

Since the government infused ₹5,500 crore in Punjab & Sind Bank only two months back, it may hold back on its privatisation for a year or two. 

Which are the Shortlisted PSBs ?

So, the shortlist of PSBs that could be eligible for privatization gets whittled down to three – BoM, CBoI and IOB. 

CBoI and IOB are still under the RBI’s prompt corrective action (PCA). But they could be brought out of PCA as there are visible signs of improvement in some of the key parameters such as profitability and asset quality (in net NPA terms as they have stepped up provisioning) in the last 3-4 quarters. 

BoM stands out as it has posted net profit for eight quarters on the trot after the massive quarterly loss of ₹4,856 crore in December 2018. The Pune-headquartered PSB’s asset quality has shown marked improvement and it has a good RAM (retail, agriculture, MSME) to corporate loan mix of 61: 39.

Input from - thehindu

No comments:

Post a Comment


Post Top Ad