Bank consolidation or privatisation not under discussion now: DFS secretary

Privatisation of two public sector banks was announced in the Budget 2021-22.

There is no proposal on the next round of consolidation in PSU lenders or privatisation of two public sector banks under discussion in the government with even small banks performing well and general elections round the corner, Department of Financial Services (DFS) Secretary Vivek Joshi said.

“There is nothing right now on bank privatisation. There is no formal proposal. The draft amendment will not take too long to do. It will be done when the time is appropriate. It is a call that will be taken when it is taken,” Joshi told Moneycontrol in an interview.

To facilitate the privatisation of two public sector banks as announced in the Budget 2021-22, first amendments need to be made in the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 and Banking Regulation Act of 1949.

“It is about wealth and value creation. So at what stage a decision is taken, the government will look at the market also. And we have elections coming up. Even if the same government comes back, the thought process can also change,” he said.

The earlier bank consolidations happened in 2020 when Oriental Bank of Commerce and United Bank of India were merged with Punjab National Bank, Syndicate Bank merged with Canara Bank, Andhra Bank and Corporation Bank merged with Union Bank of India and Allahabad Bank was merged with Indian Bank.

The DFS secretary said that currently there is no case for bank consolidation as even the small banks are performing well. “When earlier bank consolidation was done, many banks were under Prompt Corrective Action. There were many restrictions on them. This situation doesn’t exist now. The small banks are actually the better performers now, such as Bank of Maharashtra and Indian Overseas Bank. Who will be the candidates to merge? It will be these and the Central Bank of India. But they are performing well right now,” he said.

Within PSUs, apart from State Bank of India, Bank of Baroda, Canara Bank, and Punjab National Bank are the bog ones. Globally India has HDFC Bank and ICICI Bank in the private sector as big banks.

The government has given an enabling environment to the banking sector that has allowed PSU banks to perform well. The banks have made record profits and gave Rs 13,000 crore dividends in FY24.

There is now no longer a need for any capital infusion in banks as they raise funds themselves from the market, he said. “No capital infusion in banks, that has been very clear. They raise capital themselves, through Qualified institutional placements (QIPs),” Joshi added.

Many PSU banks do not meet the minimum public shareholding criteria of 25 percent for which the government will again seek Sebi exemption beyond August 2025, he said.

Privatisation of Insurance PSU

The privatisation of one public insurer is also pending with was an earlier Budget announcement. “The legal amendment has been done. We have done our work and handed it over. Now, the ball is in DIPAM’s court. They will have to identify which (company to privatise). Of course, when the inter-ministerial committee is formed, DFS will be there,” he said.