The much-awaited privatisation of public sector banks (PSB) is unlikely to happen before the 2024 general elections, according to a senior government official. "Nothing is going to happen before the 2024 general elections. We don't have legislation yet for it — without that privatisation is not possible," said the official, requesting anonymity.
Amendments would be required to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, for privatisation, the official said, adding that these Acts, which formed the basis for nationalisation of banks in two phases, need to be changed for privatisation.
India currently has 12 public sector banks: Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of India, UCO Bank, and Union Bank of India.
Bank privatisation has been on the anvil for successive governments but the plan hasn’t progressed due to stiff opposition from trade unions.
Finance Minister Nirmala Sitharaman, while presenting Budget 2021-22, had announced the privatisation of Public Sector Banks (PSBs) as part of the disinvestment drive to garner Rs 1.75 lakh crore.
At that point, the FM had said that other than IDBI Bank, the government proposes to take up the privatisation of two public sector banks and one general insurance company in 2021-22. But, this announcement wasn’t followed up.
"Every government takes the decisions at the right time. So, I don't think that anything is going to happen before the general elections," the finance ministry official quoted earlier added.
According to the official, the IDBI bank case is different because it is not a public sector bank but a ‘private sector’ bank in which the government holds a stake.
IDBI Bank stake sale
Also, financial bids for IDBI Bank are likely to be invited by December as clearance from the RBI is awaited for the strategic sale, from which the government aims to get approximately Rs 16,000 crore this financial year, another senior government official said.
“From the IDBI Bank strategic sale, the government will get a good amount of Rs 15,000-16,000 crore. The strategic sale should move this year. The government is targeting financial bids by December and to close the deal in the fourth quarter,” the official told Moneycontrol.
The government and LIC combined are selling a 60.72 per cent stake in IDBI Bank.The Department of Investment and Public Asset Management (DIPAM) is awaiting clearance from the Reserve Bank of India (RBI) since it concerns a strategic sale of the bank.
“It has been sent to the RBI, and discussions have been held with them. A clearance is expected soon. The strategic sale of IDBI Bank is a low-hanging fruit because technically it's already privatised,” he said.
The official added that the government will come up with legislation “only when they are ready for it.” PSB privatisation has to be allowed by parliament, without which the process cannot go ahead, the official said.
"At the time of the budget in 2021, PSB privatisation was announced but I think it was not followed up by parliament," the official added. According to the official, the names being mentioned in the media as likely candidates for privatisation are pure speculation.
"Names which are running in the media of banks have no meaning until we have legislation,” the official said.
Government promise
Earlier, Finance Minister Nirmala Sitharaman had said that privatisation of public sector banks would go on as per schedule. “About the bank privatisation, they will go on as per schedule. There is no change,” Sitharaman said on May 29, in Mumbai.
In 2019, the central government decided to merge six disparate and weak PSBs into four in one stroke.
Accordingly, Punjab National Bank (PNB) took over Oriental Bank of Commerce and United Bank of India; Allahabad Bank became part of Indian Bank; Canara Bank subsumed Syndicate Bank; and Andhra Bank and Corporation Bank merged with Union Bank of India. Earlier, SBI had merged five of its associate lenders with itself, while Vijaya Bank and Dena Bank were merged with Bank of Baroda.
Banking experts’ take
“If the government had gone for privatisation earlier it would not have got good value, as banks were in bad shape. Now, after lots of injection of capital, banks' balance sheets are in good shape,” said Naresh Malhotra, a former State Bank of India senior official.
"If the government does it this time, it will get a good valuation. They can do it. Also, they should wait a little more, so that the situation stabilises a little more. The balance sheets can be better. If you ask me, the government shouldn’t be in banking,” Malhotra added.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
