Government to Review Privatisation Plans for State-Run Banks

Strategic Insights -

The Indian government is reassessing its plan to privatise state-run banks, with a new panel being considered to draw a fresh list of candidates for privatisation. The move comes as state-run banks have shown significant improvement in their financial performance, with a substantial decline in non-performing loans and improved asset quality. The government's decision to review the privatisation plans is seen as a response to the improved financial health of these banks, which has made them more attractive for privatisation.

Key Takeaways:

  • A new panel is being formed to review the list of state-run banks slated for privatisation, consisting of representatives from the finance ministry, NITI Aayog, and the Reserve Bank of India (RBI).
  • The panel will identify probable candidates for privatisation from mid- and small-sized banks, with a focus on banks with improved financial parameters and lower bad loans.
  • The quantum of shareholding that the government would dilute in banks will be decided by the panel, along with the weightage to be given to banks with improved financial performance.
  • The government had earlier planned to privatise two state-run banks, IDBI Bank, and a general insurance company in the fiscal year 2023.
  • The privatisation exercise was stalled due to delays in implementing legislative changes, but is now expected to resume after the 2024 elections.
  • State-run banks have shown significant improvement in their financial performance, with a surge in net profit and a decline in gross non-performing assets.
  • PSU bank stocks have performed well on the bourses, with the overall net profit of 12 PSU banks in the June quarter surging to Rs.34,418 crore from Rs.15,307 crore in the year earlier.

Statistics:

  • The overall net profit of 12 PSU banks in the June quarter surged to Rs.34,418 crore from Rs.15,307 crore in the year earlier.
  • State-run banks have reported a decline in gross non-performing assets from a peak of 14.6% in March 2018 to 5.53% in December 2022.
  • PSU bank stocks have performed well on the bourses.

Sources:

  • Hindustan Times, "Government to review privatisation plans for state-run banks amid improved profitability" (October 23)
  • NITI Aayog, report recommending two government-owned banks for privatisation
  • Reserve Bank of India (RBI), prompt corrective action (PCA) plan for banks
  • Finance Ministry, spokesperson (October 23)