Privatisation of PSBs

Finance Minister Nirmala Sitharaman, in her budget speech in February 2021, said that the government plans to privatise two PSBs (Public Sector Banks). The government had already privatised 10 banks and merged them into 4. This time, Central Bank of India and Indian Overseas bank are reported to be the probable candidates. Presently, India has 22 private banks.

Many committees had suggested the lower government stake in PSBs below 51% like Narasimhan committee proposed 33% and P J Nayak committee suggested below 50%. RBI is currently working on these suggestions.

Why privatisation?

As compared to private banks, PSBs continue to have high non performing assets. And this situation get worsed after the pandemic as NPA ratio of all commercial banks may increased 13.5% by September 2021. Also government reforms have not been able to improve the financial position of PSBs significantly.
Despite this, the government is trying to strengthen the strong banks and minimise the burden upon them.

What is privatisation?

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The transfer of publicly owned or operated organisations to private ownership or operation. It is introduced as a way of enhancing effectiveness and efficiency of the organisation and apart from that reducing the burden on government. Those enterprises running privately are subject to the discipline of the market and hence proved efficient. It also maximizes public interest and welfare.

What are the pros and cons of privatisation?
Pros-
• It expand the efficiency of bank and provides better services to its customers.
• Ensures compliance and risk mitigation.
• Continuously upgrading services to keep up with changing market trends.
• Reinventing the way of working to attract customers and ensuring superior quality of services.
• Reducing burden on the government. Follows stringent norms for loans and dealing with frauds.
• Less government interference and function independently.
• Profitable and convert loss making ventures into profitable businesses.

Cons-
• PSBs cater to all sections of society whereas Private sector banks target mostly the upper strata of society, adversly affecting the poorer sections of society.
• Choose to operate only in urban areas where the profit is high unlike PSBs, which emphasis on all and provide modern facilities even in non-profitable areas.
• Income variability that may trigger protest around the country.
• Due to minimum presence of government in banking sector, private sector banks arbitarily take actions on government welfare schemes.

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Privatisation looks like solution for all the problems in banking sector, which is not exactly true. It is vital for banks to penetrate into each strata of society for the nation’s holistic growth. There should be a combination of efficiency and sense of service towards the nation. Only after which banks can develop and prosperity is secured.