The government has initially selected four medium-sized banks for privatization. Three sources of the government have given information about this. According to sources, these include Bank of Maharashtra (BoM), Bank of India (BoI), Indian Overseas Bank (IOB) and Central Bank of India. In the budget presented for the next financial year on February 1, Finance Minister Nirmala Sitharaman had said that the government was aiming to privatize two small banks and one insurance company owned by it.
The Indian banking sector is largely dominated by large public sector banks, any decision like privatization can be politically risky. The reason for this is that they have a large number of employees. In the face of privatization, most of them are at risk of becoming unemployed. In view of this, the administration of Prime Minister Narendra Modi has decided to start privatization with second tier banks. Out of the four banks, the government has selected, two will be sold in the financial year starting April.
Officials said that in order to gauge the mood of the market and investors regarding the privatization of banks, they are choosing medium and small banks in the first round of privatization. If the response from investors is good, the government may also consider privatization of relatively few big banks in future. Currently, BOI has around 50,000 employees and Central Bank of India 33,000. IOB currently has about 26,000 employees. BoM is the youngest in this case with 13,000 employees, so its privatization is unlikely to be many problems. Sources say that the process of privatization may take up to six months.
However, the government will retain most of its stake in the country’s largest lender State Bank of India (SBI). The government will continue to treat SBI like a strategic bank to promote credit disbursement and implementation of policies in rural areas of the country. At the same time, the government is moving towards privatization under a radical change in the banking system under the burden of trapped debt.
After the Corona-Crisis, when the government asks banks to classify assets, it is believed that their Non-Performing Assets NPAs will be increased once again. Sources say that the Prime Minister’s Office (PMO) had made up its mind to privatize four state-run banks. But in view of the fear of opposition from the bank employees’ organizations, the officials have currently advised pursuing work on privatization of only two.