The Narendra Modi-government has decided not to take up the privatisation plan of public sector banks (PSBs) this year and will instead focus on strengthening some of the state-run banks further to compete at the global level by implementing a thorough business review of the operations in consultation with respective bank managements, according to two people familiar with the development.
The details of the PSB business review will be finalised soon after a meeting with the top executives of PSBs with finmin officials, said one of the persons quoted above. Both declined to be named citing the sensitivity of the matter.
“At this stage, the thinking within the government is clearly not to press ahead with the privatisation except that of IDBI Bank which is already on the course. The government will soon do a review of the PSB business operations to identify the growth and risk areas,” said the person quoted above.
On 10 July, BizNewsweek exclusively reported that the Union Finance minister Nirmala Sitharaman is unlikely to take up bank privatisation in the Budget 2024-25, according to highly placed sources in the government.
Earlier, reports had emerged that the Government is considering a list of banks to privatise in this round drawing comfort from the healthy market sentiments and reform-intent.
India currently has 12 public sector banks (PSBs). In 2020, the government executed a mega merger by folding 10 state-run banks into four, reducing the number.
Earlier, there were also media reports that the government is considering merging a few banks this time– UCO Bank, Bank of Maharashtra, Punjab & Sind Bank, and Central Bank of India. This also didn’t happen in the Budget 2024-2025 as reported by BizNewsweek.
Presently, the government holds anywhere between 57-98 per cent stake in different state-run banks.
Despite repeated promises, all that has happened so far is a mega-merger of 10 state-run banks into four in 2019-20 and a government-nudged buy of IDBI Bank using India’s largest insurer – Life Insurance Corporation of India – in 2019.
The gross non-performing assets (GNPA) ratio of banks fell to a 12-year low of 2.8 per cent at end-March 2024, per the RBI’s June Financial Stability Report (FSR). The scheduled commercial banks’ or SCBs’ net non-performing assets (NNPA) ratio fell to 0.6 per cent at end-March 2024.
PSBs have their capital adequacy ratios above 15 per cent, way higher than the mandated 12 per cent. For instance, banks like Uco (16.98), Punjab and Sind (17.16) and Bank of Maharashtra (17.38) have CAR way above the mandatory levels.