News By/Courtesy: Parimala Ronanki | 03 Apr 2021 13:55pm IST

HIGHLIGHTS

  • privatization of two banks to take place in the financial year 2021-22.
  • advice by the PJ Nayak panel.
  • prompting of PSBs.

In India, banks were nationalized in 1969 and now the centre after 51 years. now they want to start the privatization of PSBs. There are a total of 12 banks and which government holds more than 70%stake in 10 banks and over 90%in three banks. Now the government is thinking to privatise some of these banks. So, In the recent budget that is 2021's budget, India’s minister of finance and corporate affairs Nirmala Sitharaman as a part of the government's strategic disinvestment and sale declared that the two public sector banks out of four shortlisted banks will be privatized. PSBs have done a very important thing in these 51 years is that these banking and financial services to rural areas. but there were many questions raised on their government standards and operational efficiency. But here the main question that arises is should India privatize its government-owned banks. Public sector banks are major types of banks in India, where the major stake is held by the government. In 2019 Nirmala Sitharaman has merged 6 public sector banks with 4 better-performing anchor banks. Before 27 banks were merged and made into 12 banks. PJ Nayak panel It is a committee/panel that was formed in 2014. This panel gave many recommendations but still now only has been followed. Still, others are left in that important is the privatization of banks. RBI has appointed PJ Nayak panel, PJ Nayak gave the recommendations how the banks governance and how can their governance be improved. The panel said that the government should bring down the stakes in PSB. Now the question raises is why they said this that by doing privatization their governance will enhance. The panel wants to say that the public sector banks which are there, their productivity is lower, their assert quality is getting low and most of them are competitive with private sector banks. The recapitalization of these banks would impose sufficient fiscal cost on the government. At present, the governance of these banks continues then this will impede fiscal consolidation, effects fiscal stability, and slowly impede on the government’s solvency. For this it is important to have two options for the government, one is to privatize these banks other is to radically design a new governance structure for these banks, which will help to better compete with other good private banks. As these governance reforms are big and quite difficult and hence, they are better ideas, says PJ Nayak. To privatize the banks and privatization does not mean selling all the stakes like for say in SBI there are 57 stakes then sell the 7 per cent then it can also be said as privatization, says the panel. Governance of public sector banks is there because the reason is the externally imposed constraints. The PSBs have the regulation of the finance ministry and the RBI so the problem that arises is it is difficult to categorize any directors as independent, chairman of public and private sector banks the difference between the compensation between them is significant so they are going to private sector banks this also brings the problem of shift/erosion of special skilled persons. PJ Nayak panel says that government stake in these banks is reduced by less than 50% and take some other executive measures then the external constraints would automatically be disappeared. This would be a beneficiary for the government as it would be the dominant shareholder and without its control in the banks diminishing, it would create a condition for the bank to compete more successfully. Hence PJ Nayak panel says so, it is required to do privatization. The government finally acted in 2018 when it asked LIC to take over IDBI bank. It is exactly not privatization as LIC is owned by the government after all. IDBI was followed by a mega-merger exercise. And in 2020 10 PSB were turned into 4 PSB. And finally, in the 2021 budget, it is announced that two state-run banks are to be privatized but yet the names of the banks are not said.

 

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, 5thVoice.News shall not be responsible for any errors caused due to human error or otherwise.

Section Editor: 5thVoice.News | 03 Apr 2021 22:06pm IST


Tags : #PSBs#disinvestment

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