In Budget 2021, the Centre had announced its plan to privatise two state-owned banks. But it made little progress to implement the plan on the ground. That was because it could not move legislative amendments to enable privatisation of public sector lenders – the first step towards privatisation – due to Covid-19 pandemic and disruptions in Parliament.
According to the proposed amendments that were to be moved in the winter session of Parliament, the government is to lower the minimum stake it holds in public-sector banks to 26 per cent from the previously mandated 51 per cent. The legislation also aimed at empowering the government to make a scheme for privatisation of PSBs in consultation with the RBI. The proposed legislation had provisions regarding the disqualification of directors, as well as terms and conditions for service of chairmen, whole-time directors, and boards of directors.
The government is also to consider changing the foreign direct investment limit in public-sector banks, which is 20 per cent at present.
The government has informed Parliament that the Cabinet has not taken any decision on privatisation of two state-owned lenders announced in Budget 2021-22. However, the NITI Aayog has reportedly recommended privatisation of Indian Overseas Bank and Central Bank of India.
Central Bank of India is likely to be removed from the RBI’s prompt corrective action framework soon.
The Centre is also likely to infuse capital in Central Bank of India and Indian Overseas Bank, which got out of RBI’s PCA last September, to meet regulatory requirements.
Despite the pandemic, public-sector banks have reported profits in the ongoing financial year. Impressive raising of capital from the market by PSBs has made the government confident that such lenders are now self-sufficient and may not have to look to the Centre for capital in future.
PSBs recorded net profit of Rs 31,820 crore in FY21 which has been the highest in the last five financial years.
With regard to privatising one public sector insurer, the NITI Aayog has suggested privatisation of United India Insurance, the approval to which is yet to be accorded by the Cabinet. Once approved, the DIPAM would start the privatisation process of the insurer.
Besides this, the government is also looking to restructure the regional rural banking space. A panel was appointed by the Centre to suggest turning around RRBs which is learnt to have suggested segregating RRBs into categories based on the capital they require, and if infusing funds in them is feasible. The committee’s recommendations are with the government, and the Finance Minister may look at providing a road map to turn around regional lenders in tomorrow’s Budget.
Watch video
 "Budget 2022: What to expect on bank privatisation, subsidy reforms?")
