Government Pre-selects Four Mid-Sized Banks for Privatization
By – Ashwathy Nair
- Four mid-sized banks have been shortlisted by the government.
- Administration of PM Modi aims to make a start with second-tier banks.
- The actual privatization process possibly will be taking 5 to 6 months to start.
Three government sources stated that under a new effort to sell state assets and boost government revenues, four mid-sized state-run banks have been shortlisted by the government for privatization.
Privatization of the banking sector, which is dominated by state-run mammoths with hundreds of thousands of employees is politically at risk as it could put jobs at risk but the administration of PM Modi aims at making a start with second-tier banks.
Two officials spoke to Reuters on condition of anonymity as the matter is not yet public, the shortlisted four banks are Bank of India, Bank of Maharashtra, Indian Overseas Bank and the Central Bank of India.
The officials stated that two of those banks are going to be selected for sale in the year 2021-2022 financial year which begins in April. Previously, the shortlist has not been reported.
In order to test the waters, the government is considering mid-sized to small banks for its first round of privatization. In the anticipated years it could also be looking at some of the bigger banks of the country, the officials stated.
However, the government will be continuing to hold a majority stake in the largest lender of India, (SBI) State Bank of India, which is appreciated as a ‘strategic bank’ for implementing initiatives like expanding rural credit.
The economists stated that the deepest economic contraction of India on record caused by the pandemic is compelling the push for bolder reforms.
New Delhi also wishes to renew a banking sector that is spinning under a heavy load of non-performing assets, which are likely to increase further once banks are allowed to categorize loans that were soured during the pandemic as bad.
In the coming year, the office of Modi initially wished to have four banks to be put up for sale, but as per the officials, they have advised caution fearing resistance from the union representing the employees.
As per the estimates from bank union, the workforce of each bank are as follows:
Bank of India – 50,000 workforce
Central Bank of India – 33,000 Staffs
Indian Overseas Bank – 26,000 employees, and
Bank of Maharashtra employs – 13,000 workers.
The sources stated that the smaller workforce of Bank of Maharashtra could be making it easier to privatize and therefore it is potentially one of the first to be sold.
Workers started a two-day strike on Monday opposing the move of the government to privatize banks as well as to sell stakes in insurance and other companies.
One of the government sources stated that the actual privatization process might take 5 to 6 months to start.
The government hopes that the banking regulator of the country, Reserve Bank of India will soon be easing lending restrictions on Indian Overseas Bank after an improvement in the finances of lenders that could help its sale.