"BANK PRIVATISATION

"Privatisation of two public sector banks and one general insurance

company."

-Union Budget 2021

Before we deep dive into banks' privatization, rst, let's understand how we
land hereafter nationalization.

Nationalization gave the state or central government the power to own or

operate the public sector assets, which was done in 1969 under the
expertise of then Prime Minister and Finance Minister Indira Gandhi. For the
purpose of increasing rapid growth in small industries, businesses, export,
agriculture, etc.

The future and penetration of the banking sector grew, which was
unmatched by any other country.

Along with this, the political in uence interfered as many politicians used
these for poverty schemes to help them win votes.

Privatization of banks means the majority stake will be owned by private

investors.

As it has been
widely reported for years now that the increasing number of Non- Performing
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Assets (NPAs) has been posing a challenge and getting classi ed in bad
debt for several years now through providing loans to doubtful entities and
also under the power and in uence of ministers and secretaries with
corruption.

More than 3.8 trillion rupees in the past 12 years of taxpayer's money has
been gone to keep PSBs up oat through "capitalization of banks, which
means the government is investing tons of cash in compensating for the
losses incurred due to ine ciency, bad loans, and corruption of PSBs.

As reported by the Financial Stability Report by RBI, the gross NPA ratio will
increase from 7.5% in September 2020 to 13.5% by September 2021 after
Covid related regulations are lifted, meaning injecting more capital into weak
PSBs.

Private sector performance has risen from 21% to 36%, while PSBs declined
from 74.28% to 59.8% in the last 5 years.

Water under the bridge, but honestly speaking, the government back in 1971
shouldn't have directly nationalized the banks to branch out services in the
rural areas. Instead, given the power of RBI at that time, they should have
focused on encouraging the private banks to increase their branch services
in the then underdeveloped and help needed areas.

Pros
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 1. The new management will be oriented towards pro ts, just like other
private banks.

2. Complete restructure of operations might happen.

3. Free service provided by the PSBs will be converted into paid models.
(Eg: Passbooks, Cards, etc.).

4. They are helping the government to invest the recapitalisation funds into
other better alleviations and projects, reducing their burden.

5. Improvement into services as banks need to be the side of the

competitors.

6. Advancement in technology and e ciency.

7. More Foreign investments.

Cons

1. Di cult for the middle class and poor people to get loans.

2. Same scenarios for banks like private and government hospitals.

3. Privatisation will lead to the ring of people who don't have the required
skills and abilities to grow forward.

4. Majority of people have trust in PSB for their deposits of savings.

5. Reduction in schemes like "Jan- Dhan Yojna," "Pension Yojna."

Bids should be opened to foreign banks that have their presence in India for
a long time as it is essential to start a good beginning.

Conclusion

As bad loans are weighing down the economy, and it is going to get worse
because of the pandemic. The government should take into account the
international experience (to avoid crises like the 2008 nancial crisis) and the
management of banking.

The government should also suggest and make attractive structures for
private banks to successfully carry on the advantages o ered by PSBs as
well and work towards achieving the $5 Trillion economy, as banking is the
backbone of every country's economy.

REFERENCE
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http://www.businessworld.in/article/All-About-Privatization-of-PSBs-/
26-02-2021-382065/

https://www.drishtiias.com/daily-updates/daily-news-analysis/privatisation-
of-banks

https://www.quora.com/What-are-pros-and-cons-of-privatization-of-banks-
in-India

https://timeso ndia.indiatimes.com/blogs/toi-editorials/get-it-right-bank-
privatisation-must-make-a-good-start-dont-go-air-india-way/

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