4 Mid-Sized Government Banks Shortlisted For Privatisation: Report
The performance of the banking sector, which is run by state-owned hundreds of thousands of workers, is politically dangerous as it could jeopardize jobs but Prime Minister Narendra Modi’s administration aims to start with second-tier banks.
Four banks are on a list to be screened by the Bank of Maharashtra, the Bank of India, the Indian Overseas Bank and the Central Bank of India, with two officials telling Reuters on condition of anonymity as the matter is yet to be made public.
Two of those banks will be selected for sale in the 2021/2020 financial year starting in April, officials said. Shortlist was never reported before.
The government is taking into consideration the medium to small banks in the first round of independence to test the water. In the coming years it could look at other major banks in the country, officials said.
The government, however, will continue to play a major role in India’s largest bank, the State Bank of India, which is seen as a ‘strategic bank’ to implement programs such as increasing domestic debt.
A spokesman for the Treasury denied to comment on the matter for the same.
India’s deepest economic downturn in the record caused by the epidemic is pushing for radical change, economists say.
The government also wants to rehabilitate a banking sector that is under pressure from the burden of non-performing assets, which could increase significantly if banks are allowed to classify loans that were damaged during the epidemic as bad.
Prime Minister Modi’s office initially demanded the sale of four banks in the next financial year, but officials have warned to warn unions representing workers.
The Bank of India has about 50,000 employees and the Central Bank of India has 33,000 employees, the Indian Overseas Bank employs 26,000 and Maharashtra Bank has about 13,000 employees, according to banking union estimates.
Maharashtra Bank’s small staff can make it easier to privately buy customers’ items so it may be one of the first to be sold, sources said.
On Monday, workers began a two-day strike in protest of the government’s move to grant banks the right to sell and sell stakes in insurance and other companies.
The actual stock exchange process could take 5-6 months to begin, says one government source.
“Factors such as the number of workers, union pressure and political consequences will affect the final decision,” the source said, noting that the transfer of a particular bank could be changed at the last minute because of these factors.
The government hopes that the Reserve Bank of India, the regulator of banks in the country, will soon reduce the lending limits on the Indian Overseas Bank after improving lending funds that could aid its sale.
Some economists say there may be a few who will take weaker and smaller banks – with bad assets – but Prime Minister Modi should consider the sale of major banks such as Punjab National Bank or Bank of Baroda.
“The government should consider what gives it better prices without compromising its long-term goal of supporting India’s growing economy,” said Devendra Pant, an economist at India Ratings, India’s Fitch rating agency.