What does Bank Privatisation mean? NITI Aayog finalises the names of PSBs to be privatised
The government think tank, NITI Aayog, has submitted the names of two state-owned banks and one public sector general insurer to be privatised in the FY 2021-22 to the Core Group of Secretaries on Disinvestment. The list will be examined and finalized by the Department of Investment and Public Asset Management (DIPAM), and the Department of Financial Services (DFS).
Along with these, the government is planning to conclude the privatisation process for Air India, BPCL and Shipping Corporation in the current fiscal year.
In her 2021-22 Budget speech, Finance Minister Nirmala Sitharaman announced that other than IDBI Bank, the government proposes to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22.
Last year, 10 Public Sector Banks (PSBs) were merged into four PSBs. With this, there are now 12 Public Sector Banks (PSBs) in India, down to 27 PSBs.
Privatisation of Banks
Privatisation of Banks: What does it mean?
With the privatisation of the banks, the Central Government's active and direct involvement in the day-to-day activities of the banks will shrink. Also, the majority stake held by the Centre will be offloaded in favour of private players. This, in turn, will increase the competition of PSBs in the market with little to no financial dependence on the government funds.
Need for the privatisation of banks
Due to the ongoing pandemic, the country's economy has shrunk. RBI in its latest Financial Stability Report projected that the Gross NPA ratio of banks will increase from 7.5% in September 2020 to 13.5% in September 2021, thereby leading to more capital flow from the government to the public sector banks.
Thus, with its privatisation drive, the Centre is planning to strengthen the banks that are performing better while aiming to strengthen those that are currently underperforming but may perform better post-privatization.
Which banks will be privatised in India?
|2.||Indian Overseas Bank|
|4.||Bank of Maharastra|
|5.||Punjab and Sind Bank|
|6.||Bank of India|
Amongst these, the Bank of Maharastra and Central Bank are top choices are per reports.
Which public sector general insurance company will be privatised in India?
|1.||National Insurance Company|
|2.||United India Insurance Company|
|3.||Oriental Insurance Company|
Amongst these, United India Insurance Company is the top choice as per reports.
What may happen post-privatisation?
1- Once privatised, the banks will be in profit.
2- Less Non-Performing Assets (NPAs).
3- Discontinuation of branches that are underperforming.
4- Reconsideration of the employees.
5- Free services may be converted into a paid model.