The Indian government must not sell public sector banks (PSB) on whom it relies to roll out social welfare schemes like the Jan Dhan Yojana (a financial inclusion programme), Ashwani Mahajan, Co-Convener of the Swadesh Jagran Manch (SJM), told Moneycontrol in an interview.
“Public sector banks must remain in the public sector. They should not be sold at all. We have said this time and again. What are the great things that private sector banks have done?”, he added.
The SJM is the economic affiliate of the Rashtriya Swayamsevak Sangh (RSS), whose committed cadre provides critical on-ground support to India’s ruling Bharatiya Janata Party (BJP), and from whose ranks much of the party’s top leadership is drawn.
The comments, which come ahead of the 2023 union budget due on February 1, are an indication of the mounting pressure on the government not to privatise state sector banks as it heads into the general elections due early 2024.
Moneycontrol has reported that the government may set a very conservative divestment target and defer the privatisation of banks and insurance companies.
On February 1, 2021, Finance Minister Nirmala Sitharaman had proposed the privatisation of two public sector banks, along with IDBI Bank, in 2021-22. The required legislative amendments that were to be introduced in the 2021 budget session are yet to be presented.
On February 4, 2021, the government notified the new Public Sector Enterprise Policy, under which it classified central public sector enterprises into strategic and non-strategic sectors. Atomic energy, space, and defence, transport, telecommunication, power, petroleum, coal and other minerals, banking, insurance, and financial services were listed as strategic sectors. There will only be a “bare minimum” presence of Central Public Sector Enterprises (CPSE) in strategic sectors.
In non-strategic sectors, all state-run firms will be privatised, merged, or shuttered.
India currently has a dozen PSBs, including the behemoth, the State Bank of India (SBI).
The number of banks has been whittled down 12 from nearly two dozen after the government merged SBI’s subsidiaries with itself, and carried out another round of mergers of smaller PSU banks with large ones.
India also has 21 private sector banks, a dozen small finance banks, and four payments banks, as well as over 40 regional rural banks, and over 40 foreign banks.
The government is in the process of selling its stake in IDBI Bank. The transaction is likely to be completed in the first half of 2023-24.
Management, not ownership, key to performance
Mahajan said that public sector banks are now run in a very honest manner. “Even one paise of unscrupulous lending is not happening. People who have been appointed to bank boards have been told strictly that there is zero tolerance. They should not recommend a single loan,” he added.
Indian banks’ bad loans have reduced in recent years following an asset quality review and the capitalisation of banks during the pandemic. The gross non-performing assets (GNPA) ratio of all scheduled commercial banks eased to 5.8 percent in March 2022 from 7.3 percent in March 2021. Public sector banks, which accounted for the largest chunk of bad loans, saw their GNPA ratio easing substantially from 14.6 percent to 7.4 percent between March 2018 and March 2022, and net NPA declining to 2 percent from 8 percent during the same period.
“The question is about management, not ownership. Ownership doesn’t make any difference. Whether you own it or I, it does not matter. We should run banks well,” he added.
Lauding the contribution of PSBs in rolling out Jan Dhan accounts, on which the government’s direct benefit transfers (DBT) piggyback, Mahajan asked whether a private lender-dominated system would have been able to match up to the task.
“Would private sector banks give what the poor need, things like a Mudra loan? Don’t we still have inequality in the country? Rural India's per capita income is one-twelfth of the urban,” he said.
Opposed to strategic sales
On the government’s public sector enterprise policy, which is based on the thinking that the government has no business being in business, Mahajan said he was against selling the “family silver” and frittering away the money, especially as the larger state-run units are not draining money from the exchequer today.
“We are not against privatisation of the public sector. But to sell it like this is not smart. It should not be through a strategic sale, it should be through the IPO route, the equity route,” he explained.
He asserted that even a single PSB won’t be sold.
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