With piling bad debts and losses, Centre may reduce number of public sector banks to just five
As part of its broader goal to improve the financial health of the ailing banking sector, centre is looking to privatise more than half of the public sector banks and reduce the number of government-owned lenders to just five. The government is working on a privatisation plan to help raise money by selling assets in non-core companies and sectors when the country is strapped for funds due to lack of economic growth caused by the coronavirus pandemic, News Agency Reuters reported.
The first part of the plan would be to sell majority stakes in Bank of India, Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab & Sind Bank, leading to an effective privatisation of these state-owned lenders, Reuters quoted a government official as saying.
The official said that such a plan would be laid out in a new privatisation proposal the government is currently formulating, and this would be put before the cabinet for approval.
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Several government committees and the RBI have recommended that India should not have more than five state-owned banks.
"The government has already said that there will be no more mergers (between state-owned banks) so the only option for them is to divest stakes," a senior official at a state-owned bank said.
Last year, the government had merged ten state-owned banks into four, creating a handful of larger banks in the process.
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"Now we are thinking of selling the unmerged banks to private players," the government official said.
Bad debts of Indian banks is expected to double after the COVID-19 crisis. At a banking conclave in July, RBI Governor Shaktikanata Das already indicated that the economic impact of the pandemic will lead to increased defaults by borrowers. “The economic impact of the pandemic… may result in higher non-performing assets (NPAs) and capital erosion of banks. A recapitalization plan for public sector banks (PSBs) and private banks has, therefore, become necessary."
In the March quarter, as many a twelve state-owned lenders (PSBs) recorded gross NPAs worth Rs 5.47 lakh crore, more than twice the size of the bad-loan pile of 19 private banks, which stood at Rs 2.04 lakh crore, according to data collated by Capitaline. The actual value of bad assets in PSBs is likely to be much higher as Q4 results for six PSBs, which were merged with other banks during the quarter, have not been made public.
(With inputs from Reuters)
Posted By: Rakesh Kumar Jha