Govt unlikely to go ahead with privatisation of banks: Official

Govt unlikely to go ahead with privatisation of banks: Official

The Centre has shelved a proposal to privatise two public-sector banks as the sector has become more profitable, a senior government official said.

“We don’t need to privatise banks.. what is the need? They are profitable .. and there is a trust factor with public sector banks,” said the source.

Public sector banks’ profitability has seen an impressive rise of late, with some outshining its private counterparts. PSBs' aggregate net profit stood at Rs 1.41 lakh crore in 2023-24 as against Rs 1.05 lakh crore in 2022-23.

Many expected the government to move ahead with the procedures to privatise the two PSBs with the general elections being completed in May 2024.

Finance Minister Nirmala Sitharaman had announced the government’s intent to privatise two public-sector banks in the Union Budget for 2021-22 as part of the new public sector enterprise (PSE) policy that restricted the number of players in the public sector to a maximum of four in strategic areas.

Another rationale behind the government’s intent to privatise PSBs had been to bring in competition in the overall banking sector while ensuring its growth.

However, the government is yet to finalise on the first amendments needed to be made in the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 and Banking Regulation Act of 1949 to facilitate the privatisation of two public sector banks.

This proposal has faced stiff opposition from bank unions since its announcement.

The bank unions see PSBs as nation-building institutions that utilise public savings for priority sectors like agriculture and have been going on strike from time to time to oppose it.

In 2021, eight lakh bank employees went on strike against privatisation.

The continued resistance against privatisation from key unions has been seen as a factor behind the government's reluctance to move ahead with this Budget announcement.

The privatisation of IDBI Bank was also raised by Member of Parliament, Supriya Sule. She said that the bank is profitable and further share sale should not be taken up. Leader of Opposition Rahul Gandhi also met with the delegation of IDBI bank employees recently. DIPAM Secretary Arunish Chawla had said that the divestment process is expected to be finalised within the next three months. The government and LIC together are divesting 61% stake in the bank with the Centre holding 30.48% stake and LIC holding 30.24%.