Privatisation of State Run Banks

Talks on to privatise some state-run banks; Punjab & Sind Bank, Indian Overseas Bank among possible names

• The finance ministry has reportedly started a process to privatise one or more state-controlled banks in an earnest attempt to make them stronger.
• Plus, a select group of top government officials has already started talks on the proposal that originally came from Niti Aayog, the policy think tank of the government.
• People with knowledge of the matter told ET that the main purpose behind the plan is to stall future bailouts by using taxpayers’ money.
• At present, the government is said to be examining the possibility to privatise Punjab & Sind Bank, Bank of Maharashtra and Indian Overseas Bank, which are currently not part of the existing consolidation programme.
• It is worth noting that there are a dozen public sector banks in India and this comes after a recent merger involving the amalgamation of 10 state-run lenders into four banks. The government wanted bank mergers in order to enable them to raise their competitiveness.
• Niti Aayog has reportedly suggested the government to give the green signal for “long term private capital” into the banking sector. Also, it has recommended providing banking licences to a few select industrial houses with clear instructions that they don’t lend to group companies.
• The financial daily quoted said one of the persons as saying, “There have been some discussions on the de-nationalisation of some banks, but there has been no decision on it yet. The discussions have to get more intense as the Bank Nationalisation Act has to be amended before going ahead with the next step.”

Background of the Issue

• As per the Reserve Bank of India (RBI) norms for on-tap universal banking licences, large industrial houses are allowed to infuse up to 10 per cent but do not qualify as “eligible entities” to operate banks.
• State-controlled bank ownership and administration are regulated by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
• Last month, the Finance Minister had announced the Centre’s intent to open up all segments of the industry, including strategic sectors, to private capital. The finance minister had also mentioned there would be a maximum of four public sector companies in strategic sectors.