Finally the countdown has begun for the Privatization of Public Sector Banks in India. The NITI Aayog has submitted the names of two public sector banks (PSBs) along with the name of public sector general insurer, which can be sold off under the government's new privatisation policy, to the Core Group of Secretaries on Disinvestment.
Now. the Department of Investment and Public Asset Management (DIPAM), and the Department of Financial Services (DFS) will examine the names suggested by NITI Aayog and finalise the banks for the possible privatisation for this financial year.
Though the names of the banks are yet to be made public, it is believed that the Bank of Maharashtra and Central Bank are the top two candidates that have been favoured for privatisation, though the Indian Overseas Bank has also found favour for the exercise either this year or possibly later.
From the Insurance companies, the name of the United India Insurance (UIICO) is at the top of the list along with National Insurance Company Limited (NIACL).
The list are selected based on teh better solvency ratio. However, financial sector experts also contend that Oriental Insurance, with the least solvency ratio among the three, may be favoured as it does not have overseas operations and inviting a private investor may be easier for it.
Earlier it was made clear that the Public Sector Banks which are under prompt corrective action (PCA) framework or weaker banks would be kept out of privatisation as it would be difficult to find buyers for them.
Earlier, it was decided that PSBs, which are part of consolidation exercise will not be privatized which leaves out five large PSBs - Bank of Baroda, Punjab National Bank, Canara Bank, United Bank of India and Indian Bank along with other PSBs that merged with them under the consolidation exercise along with State Bank of India.
This leaves room open for only six banks - UCO, IOB, Central Bank, Bank of Maharastra, Punjab and Sind Bank, and Bank of India for privatisation. The government has recently infused Rs 5,500 capital in the Punjab and Sind Bank. This would make it wait for at least couple of years before considering privatisation.
Bank of India is a very large bank that also could create problems in finding a buyer at this time but not sure.
UCO Bank may not be privatized being a sole Public Sector Banks from the eastern part of India. The government may like to have some presence of a state-run bank on the eastern part of the country.
In this year's budget, Finance Minister Nirmala Sitharaman announced that two state-run banks along with IDBI Bank would be privatised in FY22. She also said that one general insurance company would be sold off in the current fiscal.
Going ahead with the privatisation process of IDBI Bank on May 5, the Cabinet Committee on Economic Affairs (CCEA) gave its in-principle approval for strategic disinvestment along with transfer of management control in the PSB.
The extent of respective shareholding to be divested by the GoI and LIC, shall be decided at the time of structuring of transaction in consultation with the RBI.
Also Read - Discussion on Privatization
Prior to the privatisation process, the government also undertook merger of the state-run banks, amalgamating weaker banks with the stronger and larger ones.
India currently has 12 public sector banks, down from 27 in 2017.
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