PSB privatisation, a long-time government target, may happen in FY25

Presently, India has 12 state,-run banks that together control about 60 percent of the total assets in the banking system.

Privatisation of some small public sector banks (PSBs), a long-pending item on the government's agenda, may  see some progress in 2024-25, industry experts said.

“We saw the IDBI (Bank) stake sale happen in the past few years. Privatisation of other banks can also happen this year. It has been pending for a long time,” said Chandan Sinha, former executive director, Reserve Bank of India.

At present, India has 12 state-run banks that together control about 60 percent of the total assets in the banking system. Despite promises, the process of the government selling its stakes in these entities was kept on the back burner till the 2024 Lok Sabha elections. In Budget 2020, finance minister Nirmala Sitharaman had said the government intends to privatise at least two banks and one insurance company. However, this remained on paper.

Given the pendency, industry experts believe the government may actively look at privatising some of the smaller PSBs to begin with

A senior PSB executive, who did not wish to be named, highlighted that talk of privatisation has been around for long and maybe the government will reconsider the issue. “The process was on hold due to the elections. We may see the government relooking at privatisation of some PSBs soon,” the executive said.

Privatisation promises

Sitharaman, in an event in Mumbai on May 29, had said that bank privatisation will go on as per schedule. In 2022, while presenting Budget 2021-22, she had announced the privatisation of PSBs as part of the disinvestment drive to garner Rs 1.75 lakh crore.

Since then, the government and the Life Insurance Corporation of India (LIC) of India was in the process of selling around 61 percent stake in IDBI Bank. For this, in October 2022, they invited bids from buyers and in January 2023, the Department of Investment and Public Asset Management (DIPAM) said it received several expressions of interest for the IDBI Bank stake on offer Bidders have to get two sets of approvals, one from the home ministry for security clearance and the other from the Reserve Bank of India (RBI) to meet the fit and proper criteria. While the IDBI Bank stake sale is in the process, the thinking is that the privatisation of some other PSBs may well be in the pipeline.

Explaining how banks are chosen for privatisation, Montek Singh Ahluwalia, economist and chairman of the erstwhile Planning Commission, in an earlier interaction with Moneycontrol said that banks that aren’t performing well will be chosen for the process. “Privatisation seems to be limited to small PSBs which are not doing particularly well,” Ahluwalia said.

In a Business Today event in March 2024, Arvind Panagariya, chairman, 16th Finance Commission, and former vice chairman of the country’s apex economic think tank NITI Aayog, said that privatisation of PSBs should be on the new government’s agenda. “The banks are now in good health and they are flourishing, they have solid value. This is a good time to privatise. I think this is a good time, when the government comes back in its next term, to start seriously privatising some of the [public sector] banks,” Panagariya had said.

India 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. The current tally of 12 follows the mega-merger of PSBs initiated in 2019 when 10 smaller banks were merged into four bigger ones.