According to industry insiders, the government's long-pending goal of privatizing some small public sector banks (PSBs) might make some headway in 2024–2025.
"In recent years, the IDBI (Bank) stake sale has taken place. It is possible that additional banks will be privatized this year. According to Chandan Sinha, a former executive director of the Reserve Bank of India, "it has been pending for a long time."
Currently, 12 state-owned banks in India hold around 60% of the total assets inside the banking sector. The process of the government selling its shares in these firms was postponed until the Lok Sabha elections of 2024, despite assurances to the contrary. Finance Minister Nirmala Sitharaman stated in Budget 2020 that the government plans to privatize at least two banks and one insurance company. However, this remained on paper. Industry analysts predict that, given the delay, the government may actively consider first privatizing a few of the smaller PSBs.
A senior PSB executive, who wished to remain anonymous, pointed out that the government has long been discussing privatization and that perhaps it will be given more thought. "The elections put a stop to the process." The government would soon reconsider privatizing some PSBs, the executive speculated.
Sitharaman stated that bank privatization will go according to plan during a May 29 event in Mumbai. As part of the disinvestment push to raise Rs 1.75 lakh crore, she had proposed the privatization of PSBs in 2022 when presenting the Budget 2021–2022.
Since then, the sale of around 61 percent of IDBI Bank has been underway between the Indian government and the Life Insurance Corporation of India (LIC). The Department of Investment and Public Asset Management (DIPAM) stated that it received multiple expressions of interest for the IDBI Bank stake that was up for bid in January 2023 after inviting bids from buyers in October 2022. In order to satisfy the fit and appropriate requirements, bidders must obtain two sets of approvals: one from the Reserve Bank of India (RBI) and one from the Home Ministry for security clearance. Although the sale of stakes in IDBI Bank is ongoing, there is a possibility that other PSBs could soon be privatized.
In a previous interview with Moneycontrol, economist Montek Singh Ahluwalia, the head of the former Planning Commission, explained the selection process for privatization, stating that the method will be applied to banks that aren't functioning properly. Ahluwalia stated, "Privatization seems to be limited to small PSBs that are not doing particularly well."
Explaining how banks are chosen for privatisation, Montek Singh Ahluwalia, economist and chairman of the erstwhile Planning Commission, in an earlier interaction with Moneycontrol said that banks that aren’t performing well will be chosen for the process. “Privatisation seems to be limited to small PSBs which are not doing particularly well,” Ahluwalia said.
Arvind Panagariya, the head of the 16th Finance Commission and a former vice chairman of NITI Aayog, the nation's top economic think tank, stated that the privatization of PSBs ought to be a priority for the incoming government during a March 2024 Business Today event. "The banks are doing well and growing right now; their value is unwavering. Now is a favorable moment to privatize. When the government returns in its next term, Panagariya has stated, "I think this is a good time to start seriously privatizing some of the public sector banks."
The Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of India, UCO Bank and Union Bank of India are the country's twelve public sector banks.
