Following Union Finance Minister Nirmala Sitharaman’s budget speech, the banking industry has been trying to find out which two banks would be privatised to raise investment for the country. Earlier reports indicated that the Finance Minister had been in discussion with the Reserve Bank of India for the sale of stakes to raise government revenues. Following this, Reuters has reported that the government has shortlisted four mid-sized nationalised banks for the purpose.
Bank of Maharashtra, Bank of India, Indian Overseas Bank, and the Central Bank of India are the shortlisted public institutions as per the report. This seems to be an effective strategy considering the scenario, claim experts. Each bank employs thousands of workers and privatising the institution puts that at risk. Meanwhile, another source pointed out that analysts had recommended Bank of Baroda and Punjab National Bank as the candidates for privatisation.
With these being middle-tier or lower-tier banks, the backlash from the employees’ union could be brought to a minimum, believe experts. The Narendra Modi government is hoping that their development narrative will be able to soothe the public outrage. However, apart from the public, the disinvestment will also need the support of unions if there can be any hope of a smooth transfer. Bank of India has a workforce of about 50,000 and Central Bank of India has 33,000, while Indian Overseas Bank employs 26,000 and Bank of Maharashtra has about 13,000 employees, according to estimates from bank unions, says the report by Reuters. This is not the case if we are to consider Bank of Baroda and Punjab National Bank (PNB), as they are one of the biggest public banks in India topped only by the State Bank of India.
Ever since the Nirav Modi scam, PNB has been liable for almost Rs 11,000 Crore and even though the incident helped plugged weak spots in the public banking sector, it also displayed that a few employees of the system can financially cripple the institution. That brings to the second problem associated with privatisation: there might not be many buyers considering how public sector banks have collective Non Performing Assets clocked at around Rs 7 Lakh Crore. Meanwhile, the private banks are far better on that account and continue to do better.
On the other hand, the government had already expressed their interest to privatise all Public Sector Banks, except for maybe SBI, seeing as how it is the only public Domestic Systemically Important Bank (D-SIB), and the other two are ICICI and HDFC — both are private institutions. SBI is fundamental for the disbursement of government cheques, connecting various sectors, and it is often termed “too big to fail”. Therefore, experts point out that SBI might be safe from the privatisation bid. Moreover, the whole matter will take years before all the banks have been privatised, as there are a lot of hurdles to jump through.
Interestingly, the then Prime Minister Indira Gandhi began the nationalisation of public sector banks in India because most were private banks and dealt with class/caste banking and failed to help priority sectors. The bank owners would channel profits into their own companies for their benefits. Seeing as how this was not contributing to the overall development of the country, Indira Gandhi nationalised 14 banks in an initial effort and it helped boost deposits and disbursement of investment into different sectors as loans and credits.
However, in the last 10-15 years, the NPAs began to rise in the public banks and conservative economists accused the government of writing off bad loans and credits especially in the agriculture sector. However, data reports that it was mainly due to bad loans provided to private companies, which are almost threefold the agriculture write-offs. To sum up, private banks were nationalised for making them pro-poor, but the nationalised banks fell into trouble thanks to large rich private defaulters, and these banks are now returning to being private again.