Budget 2022: Can FM Sitharaman push PSB privatisation agenda?

FM Nirmala Sitharaman. | PC-Moneycontrol

The Union government may provide much-needed clarity on further consolidation of public sector banks (PSBs) in Union Budget 2022, privatising some weaker ones, but going through with such a plan may not be easy due to opposition from trade union, said banking industry experts.

“The Union government may emphasise efforts towards consolidation of key public sector banks, with a focus on privatisation of few low-performing public sector banks and working towards further enhancing the capital base of well-run public sector banks,” said Suresh Khatanhar, deputy managing director, IDBI Bank.

Privatisation—a long-pending agenda

Privatisation of PSBs is a long-pending agenda of the government. However, it has only managed to merge different state-run banks, with Union finance minister Nirmala Sitharaman in 2019 announcing the merger of 10 state-run banks into four.

Under this plan, Punjab National Bank (PNB) absorbed Oriental Bank of Commerce and United Bank, making it India’s second-largest bank after State Bank of India (SBI). Similarly, Syndicate Bank merged with Canara Bank, and Union Bank of India absorbed both Andhra Bank and Corporation Bank while Allahabad Bank was folded into Indian Bank. The Reserve Bank of India (RBI) announced the mergers coming into effect from April 1 as per a press release issued on March 28.

In Union Budget 2021, Sitharaman, said the privatisation of three entities would be carried out this year. “Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” Sitharaman had said. But there is no progress on this so far.

Moreover, the government may first focus on digitalisation of PSBs to enable them compete with tech-savvy rivals, Khatanhar said.

A senior analyst with a Mumbai-based brokerage said on condition of anonymity that the government would not find it easy to progress on PSB privatisation. “This is a highly politically sensitive decision. I do not expect anything significant to happen on this front. However, the Union budget may give some roadmap on the privatisation agenda,” said the analyst.

Trade union protests

India’s bank employee trade unions have strongly opposed privatisation of state-run banks arguing that such an exercise will lead to job losses and regional focus. The United Forum of Bank Unions (UFBU), an umbrella body of Indian bank employee organisations, has called for a two-day all-India bank strike on December 16 and 17 protesting against the Banking Laws (Amendment) Bill, 2021, and opposing the Centre’s alleged move to privatise PSBs.

“It is also a matter of reality that time and again public sector banks have been used to bail out ailing private sector banks such as Global Trust Bank, United Western Bank, Bank of Karad, etc. In the recent past, it was Yes Bank, which was bailed out by public sector SBI. The private sector’s largest NBFC (non-banking financial company), IL&FS (Infrastructure Leasing & Financial Services Ltd), was bailed out again by public sector SBI and LIC (Life Insurance Corporation of India),” UFBU’s convener B. Rambabu said in a press statement.

Also, PSBs have lost nearly Rs 2.85 lakh crore on account of loan dues of 13 corporates even as the banks are used to bail out ailing financial institutions such as Yes Bank and IL&FS, the trade union alleged.

Other focus areas in the Budget

The other important focus area in the budget is the government’s focus on improving the already improving credit growth and maintaining asset quality, Khatanhar said.

“We expect some sops to be given to the housing sector as well as it generates a significant amount of jobs. Similarly, infrastructure, manufacturing, healthcare, digitalisation and impetus on household demand are likely to be thrust sectors,” Khatanhar said.

Credit growth to industry picked up to 4.1 percent in October 2021 from a contraction of 0.7 percent in October 2020, according to the latest data from the RBI. Size-wise, credit to medium industries registered a robust growth of 48.6 percent in October 2021 compared to 20.8 percent last year, the data showed. Credit growth to micro and small industries accelerated to 11.9 percent in October 2021 from 0.7 percent a year ago, while credit growth to large industries stood at 0.5 percent in October 2021 against a contraction of 1.8 percent the previous year.

The government is preparing Budget 2022 amid fears of a resurgence in the pandemic with rising number of Omicron cases. So far, India has recorded 38 cases of the Omicron variant. India’s Covid-19 tally has risen to 3,46,97,860 and death toll to 4,75,636. India’s active Covid-19 case count has declined to 91,456.