Indian government has planned to have only five public sector banks in India – We had first reported the intention of government for reducing the public sector banks in India,(Read Here) many of our friends have not believed on it and tagged it as fake, but it is now almost clear that 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. This will lead to an effective privatization of these state-owned lenders. News published in details on Moneycontrol on dated 21072020.
The basic and only reason to go for stake sell is due to higher expenses made by the government without having any plan for proposed revenue generation. The outbreak of corona is made an excuse to complete the task. As the government officials are now saying
The government is working on a privatization plan to help to 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. “Now we are thinking of selling the unmerged banks to private players,” the government official said.
It is heard that finance ministry is very soon placing the privatization proposal before the cabinet for approval. Now, they got the valid tag also i.e. several government committees and the Reserve Bank of India have recommended that India should have not more than five state-owned banks.
But the government’s privatization plan is being worked out when the banks may face rising bad loans later this financial year because of the fallout from the coronavirus crisis.
The probable Five Banks other than SBI are :
- Punjab National Bank- the business is Rs 17.94 lakh crore. With lower gross NPA ratio of 6.61 per cent
- Bank of Baroda – the business is Rs 15.50 lakh crore.
- Canara Bank – the business along with Syndicate Bank is Rs 15.20 lakh crore. With lower gross NPA ratio of 8.77 per cent
- Union Bank of India – The combined business base of the merged bank will be Rs 14.59 lakh crore. Net NPA is 6.85%
- Indian Bank – The combined business base of the merged bank will be Rs 8.07 lakh crore. Net NPA is 3.75%
*Fig as per Dec 2019
Chances are there that the divestment plans may not happen in this financial year due to unfavorable market conditions. It is believed that the post moratorium, the bad loans at its banks could double from the existing Rs 9.35 trillion rupees ($124.38 billion) of soured loans, equivalent to about 9.1 percent of their total assets.
This may force the government to pump in nearly $20 billion into its state-owned banks.
