Good news for Bank Employees about PSU bank Privatisation

In a significant policy shift, the Centre has postponed the privatisation of two public sector banks (PSBs), according to sources. This decision comes amidst indications that the government is reassessing its approach to merging PSBs in the fiscal year 2025 (FY25). The disinvestment pipeline, as per sources, will be influenced by the prevailing market conditions.

Earlier on Wednesday, Finance Secretary TV Somanathan stated that the government will avoid pre-announcing its divestment plans for FY25 to ensure the optimal valuation of public companies. The Union Budget, for the second consecutive year, omitted any mention of ‘disinvestment’, highlighting the Modi 3.0 Government’s focus on enhancing the value of Central Public Sector Enterprises (CPSEs) rather than reducing its equity holdings.

Finance Minister Nirmala Sitharaman has set a disinvestment target of Rs 50,000 crore for 2024-25. However, the Interim Budget presented in February revised the disinvestment estimate for 2023-24 down to Rs 30,000 crore. The Interim Budget for FY2025 included a general category named ‘Miscellaneous Capital Receipts’ under capital receipts, which did not specifically mention ‘disinvestment’. This category comprises receipts from managing equity investments and public assets through various mechanisms.

The government aims to generate Rs 50,000 crore from disinvestment and asset monetization in the current fiscal year, according to DIPAM Secretary Tuhin Kanta Pandey. At a press conference following the Union Budget presentation, Pandey emphasized, “Our focus is on value creation.” This Rs 50,000 crore target under ‘Miscellaneous Capital Receipts’ encompasses various types of receipts, including disinvestment and asset monetization.

In a pre-Budget report, SBI Research suggested that the government should establish a clear policy on PSB disinvestment. The report stressed the importance of a concrete roadmap to attract capital and boost confidence in financial institutions. Additionally, a recent report from CareEdge Ratings highlighted a substantial disinvestment capacity of approximately Rs 11.5 trillion, based on current market capitalizations. This figure assumes the government maintains a minimum 51 percent stake in the public enterprises.

The decision to stay the privatisation of PSBs reflects the government’s strategic shift towards maximizing the value of its public sector enterprises rather than immediate divestment. With a significant disinvestment target and a focus on market conditions, the Centre’s approach aims to balance fiscal goals with market stability and investor confidence.

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The government's long-standing goal of privatizing Public Sector Banks might materialize in FY25.

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.

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Bank Privatization Update: Government is preparing for privatization of many banks

 

Along with better performance, public sector banks have also reduced bad loans. Meanwhile, the government is busy making new preparations for privatization. A review of the list of public sector banks is being planned by representatives of the Reserve Bank of India along with the Finance Ministry.

According to a Live Mint report, a new panel with representatives from the Finance Ministry, NITI Aayog and the Reserve Bank of India is being considered to prepare a new list of candidates for privatization. NITI Aayog recommended privatization of two public sector banks and its suggestions have also been placed before the Finance Ministry. These two banks are said to be Central Bank of India and Indian Overseas Bank.

It has been said in the report that these two banks were discussed by Finance Minister Nirmala Sitharaman in the budget of 2021-22. Along with this, privatization of IDBI Bank and a general insurance company was also announced. However, due to some reasons this plan was halted and now its exercise is expected to start again in view of 2024.

The central government is considering a panel to identify some of the medium and small-sized banks for privatization. According to the report, the panel can also decide how much stake the government will reduce in banks. Besides, a decision can also be taken on the weightage given to banks having better financial parameters and reducing bad loans.

Before the proposed privatization process, banks have merged weak banks into bigger banks to strengthen small banks. A total of 10 public sector banks were merged from 1 April 2020. There are currently 12 public sector banks in India, up from 27 in 2017.

The 12 PSB banks include State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Punjab and Sindh Bank, Indian Bank, Union Bank of India, Bank of India, Bank of Maharashtra, Central Bank of India, UCO Bank and Indian Overseas. Banks are included.

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No public sector bank privatisation till 2024 general election: Top Government Official

The much-awaited privatisation of public sector banks (PSB) is unlikely to happen before the 2024 general elections, according to a senior government official. "Nothing is going to happen before the 2024 general elections. We don't have legislation yet for it — without that privatisation is not possible," said the official, requesting anonymity.

Amendments would be required to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, for privatisation, the official said, adding that these Acts, which formed the basis for nationalisation of banks in two phases, need to be changed for privatisation.

India currently has 12 public sector banks: 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.

Bank privatisation has been on the anvil for successive governments but the plan hasn’t progressed due to stiff opposition from trade unions.

Finance Minister Nirmala Sitharaman, while presenting Budget 2021-22, had announced the privatisation of Public Sector Banks (PSBs) as part of the disinvestment drive to garner Rs 1.75 lakh crore.

At that point, the FM had said that other than IDBI Bank, the government proposes to take up the privatisation of two public sector banks and one general insurance company in 2021-22. But, this announcement wasn’t followed up.

"Every government takes the decisions at the right time. So, I don't think that anything is going to happen before the general elections," the finance ministry official quoted earlier added.

According to the official, the IDBI bank case is different because it is not a public sector bank but a ‘private sector’ bank in which the government holds a stake.

United Bank of India; Allahabad Bank became part of Indian Bank; Canara Bank subsumed Syndicate Bank; and Andhra Bank and Corporation Bank merged with Union Bank of India. Earlier, SBI had merged five of its associate lenders with itself, while Vijaya Bank and Dena Bank were merged with Bank of Baroda.

“If the government had gone for privatisation earlier it would not have got good value, as banks were in bad shape. Now, after lots of injection of capital, banks' balance sheets are in good shape,” said Naresh Malhotra, a former State Bank of India senior official.

"If the government does it this time, it will get a good valuation. They can do it. Also, they should wait a little more, so that the situation stabilises a little more. The balance sheets can be better. If you ask me, the government shouldn’t be in banking,” Malhotra added.

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PSU Banks are pillars of economic development, fostering growth, Though in real danger of Privatisation- AIBOC

 

All India Bank Officers' Confederation (AIBOC), the body of bank officers in the country, on Tuesday, said state-run lenders are in "real danger of privatisation" despite playing a crucial role in closing the economic divide in society.

On the occasion of the 55th Bank Nationalisation Day in India on Wednesday, the Guwahati-headquartered body said public sector banks (PSBs) have played an important role in promoting financial inclusion and mobilising savings since the nationalisation of the lenders in 1969.

"Public Sector Banks are in real danger of privatisation. It is an ideological conflict that can be overcome by supporting the alternative ideology that prioritises the welfare of a larger human population," AIBOC general secretary Rupam Roy said.

Since their nationalisation, these PSBs have been channeling funds to vital sectors such as agriculture, small and medium-sized enterprises (SMEs), education, and infrastructure among others, he added.

"They have been the pillars of economic development, fostering growth and providing millions of Indians with access to banking services," the statement said.

AIBOC said as income inequality becomes an urgent issue in society, PSBs play a crucial role in closing the economic divide, ensuring banking access to the underserved segments of society to foster a more equitable economic environment.

"As an appropriate measure to scrutinise the commercial activity of PSBs, the government should consider funding the cost of services rendered by PSBs at market value when it asks them to carry out its social agenda," it added.

Roy in the statement said as the largest shareholder in PSBs, the government is the biggest beneficiary of the dividends paid by the state-run banks out of the profit.

"This is in addition to the corporate taxes and other taxes that all corporations, including PSBs, are required to pay. The per employee customers for SBI is 1,900, whereas for HDFC it is 530 and for Axis Bank it is 325," he added.

Therefore, the norms and benchmarks for these India-specific PSBs must be devised specifically and their performance must be compared and contrasted amongst themselves, the AIBOC official said.

Roy further said the employees of the public sector lenders have played a crucial role in upholding national values and serving citizens with the utmost commitment.

"They have endured a variety of economic cycles, exhibited resiliency, and continued to provide vital banking services uninterrupted even during difficult Covid periods and during calamities," he added.

Roy pointed out that despite their diligent efforts, bank employees face numerous difficulties and the inadequacy of recruitment in PSBs has put a tremendous strain on the existing workforce, depriving them of much-needed leisure and work-life balance.

"In addition, it is of significant concern that pensions for retirees, who have devoted their careers to nation-building, have not been revised and increased on a par with government and RBI employees," he added.

The AIBOC urged policymakers, regulators, and other interested parties to recognise the invaluable contributions of the PSBs and their employees.

"Addressing their legitimate demands and ensuring their well-being is essential to preserving the nationalisation ethos and fortifying our financial sector for a prosperous future," it added. 

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All these government banks will be in the list of Privatization

 The government is likely to set up a panel of experts to prepare a list of Public Sector Banks (PSBs) that can be privatised, report said, quoting people aware of the developments. The centre is looking for ways to privatise PSBs as they have turned profitable and bigger, and fewer in number after several rounds of consolidation.

Previously, in April 2021, NITI Aayog had recommended the disinvestment of two state-run banks to the disinvestment department. Subsequently, the Central Bank of India and the Indian Overseas Bank were chosen for the purpose. However, no further steps were taken in this direction, the report said.

The report quoted a government official as saying, "A new committee may be set up to identify lenders for privatisation, which include mid- and small-sized banks, and determine the quantum of the stake sale based on their performance, including their bad loan portfolio among other parameters."

The panel is likely to have officials from the Department of Investment and Public Asset Management, the Reserve Bank of India, and the NITI Aayog.

Speaking on the matter, a govt official said that bank privatisation was part of a government strategy. However, now that all public sector banks have turned profitable, a reassessment of the situation is required.

The Nifty PSU Bank Index (an index that tracks the performance of PSU bank shares in the stock market) went up 65.4 per cent in the last year. Compared to this, Nifty50 (an index that tracks the broader Indian stock market) only grew 16 per cent.

The proposed privatisation plan is likely to focus on 12 smaller PSBs which may include the likes of Bank of Maharashtra and UCO Bank. Big PSBs like State Bank of India, Punjab National Bank, and Bank of Baroda are not being considered for privatisation.

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IOB, Central Bank divestment on the fast-track

The Centre plans to accelerate the process of privatisation of the Indian Overseas Bank (IOB) and Central Bank of India after the two banks posted good quarterly results, finance ministry sources said. The government’s public policy think tank Niti Aayog has already proposed the names of these two PSBs to the core group of Secretaries on Disinvestment (CGD) for privatisation.

“We had to put a halt to the privatisation process in between because of the protests by bank associations and State elections. But now, after the banks registered positive results in the December quarter, it will gather steam. CGD is assessing the proposal submitted by Niti Aayog, which will then go to the Cabinet committee for final approval,” an official told this newspaper.

Another official pointed out that there is no provision for privatisation of banks in the Bank Nationalization Act. So, an amendment is needed in the Act to privatise the state-owned lenders. “A few amendments have been proposed to the Banking Regulation Act and Bank Nationalisation Act to facilitate the privatisation.

We are trying to make an attractive scheme related to employees’ compensation to avoid strikes,” he added. In the October-December quarter, Chennai-based IOB’s net profit doubled to Rs 454 crore against Rs 213 crore in the year-ago period. In the same period, Mumbai-based Central Bank of India registered a 69% increase in its net profit at Rs 279 crore.

More banks to be identified later

After the completion of the privatisation of IOB and CBI, the Centre will identify other banks for disinvestment in the coming years. The government wants only four large PSBs in the country.

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Bank privatisation to be kickstarted soon

The finance ministry is expected to soon seek cabinet approval for amendments to the Banking Regulation Act, 1949, and possibly other legislation as it kickstarts the process to privatise two state-run lenders. The proposed changes could include the removal of the 20% foreign investment cap applicable to public sector banks in these two cases, a senior government official told ET. A more attractive voluntary retirement scheme (VRS) for employees of these two banks may also be proposed to the cabinet.

Inter-ministerial consultations have been completed on a draft cabinet note on the proposed amendments. "We have incorporated the relevant suggestions and a final proposal will soon be put for final consideration and approval of the cabinet," the official said.

Finance minister Nirmala Sitharaman had in her budget speech last year announced privatisation of two state-run banks as part of the government's disinvestment programme without naming any lenders. Subsequently, in April 2021, the NITI Aayog had shortlisted two banks without identifying them.

Reports suggest that these are Central Bank of India and Indian Overseas Bank.

The government is likely to retain at least 26% of the lenders for the first few years. The extent of the stake sale will depend on interest from investors and market conditions. Foreign investment is limited to 20% in public sector banks under the Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. A higher threshold will make these banks more attractive to investors. This will require amendment to the latter as well as incidental changes to the Banking Regulation Act.

That won't be needed for the separate plan to divest stakes in IDBI Bank. "These changes are not needed in IDBI Bank as it was set up under the Companies Act," said the official cited above. Plans are also underway to invite expressions of interest for the stake sale in IDBI Bank, in which the government and LIC own 45.48% and 49.24%, respectively.

The government had earlier listed the Banking Laws (Amendment) Bill, 2021, in the winter session of parliament to provide the necessary legal framework for privatisation of public sector banks, but it was not moved for consideration, possibly because of the assembly elections in five states. Following victory in four states in the elections, the government is widely expected to press ahead with its reform agenda. Bank unions have opposed the move and sought more public consultation with stakeholders, including workers, before taking any further steps.

Source- The Economic Times

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