When it comes to the privatization of Public Sector Banks (PSB), privatization brings down the share of the Government in Public Sector Banks (PSB) to below 50%. The process of “privatization” of banks is quite opposite to the process of “nationalization” of banks, in which 14 banks in the year 1969 and 6 banks in the year 1980 were nationalized. At present, India has 12 PSB, 21 private banks, and 44 foreign banks. The Reserve Bank of India (RBI), established under the RBI Act, 1934, controls all the banks under the Banking Regulation Act (BRA), 1949. The background of the “Privatization” drive in the banking sector of India. The process of privatization in the banking sector started with Liberalization, Privatization and Globalization (LPG) reforms of the year 1992 and the government of the present day has been pursuing privatization actively under its “Atmanirbhar Abhiyan”, the Government is considering specifying the banking sector a strategic sector
and has been planning to keep only four PSB under Government control. Two important committees (Narsimham Committee and PJ Nayak Committee) have also suggested the Government to bring down its share in the PSB to under 51%.
The underlying factors behind the privatization drive and its consequences-
In the following paragraphs, the underlying reasons and consequences of the privatization drive of the PSB have been discussed.
1. Degrading/Worsening financial position of the PSB At present, the Indian banking sector has been struggling with the issue of rising non-performing assets (NPA) worth/amounting to Rs.4,00,000 crore. 90% of these NPA are lying with the PSB. The objective of privatization is to reduce the NPA of the PSB by strengthening their loan disbursal mechanism. However, the privatization alone can’t address the issue of NPA. The recent cases of excessive NPA and banking scams in some private banks – Yes Bank and Laxmi Vilas Bank – highlight this fact.
2. The need for improvement in customer service delivery of the PSB –
The PSB are accused of lacking qualified professional manpower with adequate technical skills. This factor affects their customer service delivery negatively. The transfer of the control of PSB to private hands will ensure adequately professional manpower and higher customer satisfaction for the banks.
3. Lack of autonomy in the functioning of PSB –
Because the PSB function under the Government control, they have to face Government intervention in their everyday functioning – Loan waiver schemes for farmers, risky loans to influential businessperson. The aim of the privatization of the PSB is to liberate PSB from the Government intervention. Only the four PSB left under the government control will be given the responsibility of implementing the welfare schemes of the Government.
Conclusion -
Evidently, there is a need to improve the functioning and management of the PSB of the banking sector, and “privatization” of the PSB can help fulfill this objective. However, rather than “blind” privatization, the PSB of the nation can be transformed into Corporations – like LIC and FCI. This way, the Government can give more autonomy to the PSB, (while) maintaining its ownership. Moreover, as the problem of NPA is faced by several private banks too – for example the recent cases of Yes Bank and Laxmi Vilas Bank – the Government and the RBI need to deal with the issue of NPA via the establishment of a “Bad Bank” and proper implementation of the Insolvency and Bankruptcy code (IBC).
Views expressed are personal.
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