Privatisation of Two PSBs: Cabinet Committee Yet To Take a Decision

Moneylife Digital Team 13 December 2021

Finance minister (FM) Nirmala Sitharaman had announced that two public sector banks (PSBs) along with IDBI Bank would be privatised in FY21-22. While a high-level panel of secretaries, headed by the cabinet secretary, is believed to have zeroed in on the Central Bank of India (CBI) and Indian Overseas Bank (IOB), the cabinet committee has not yet taken any decision, the Lok Sabha was informed.

In a written reply, FM Sitharaman says, "Consideration of various issues related to disinvestment, which, inter alia, include the selection of the banks, is entrusted to the cabinet committee designated for this purpose. A decision by the cabinet committee concerned for privatisation of PSBs has not been taken in this regard."

Chandeshwar Prasad and Manne Srinivas Reddy, members of Parliament (MPs), have asked whether the government has selected various public sector banks for privatisation.

"Government, in the Union budget for the financial year (FY) 2021-22, announced its intent to take up privatisation of two PSBs in the year 2021-22 and approval of a policy of strategic disinvestment of public sector enterprises," the minister says.

Quoting sources, a 28 June 2021 report from IANS says the high-level panel of secretaries met in the middle of last week to rectify the regulatory and administrative issues concerning the PSB privatisation and have identified banks that would be put up for disinvestment. The panel would have sent the names of the shortlisted PSBs to the group of ministers on disinvestment or alternative mechanism (AM) for approval.

"People in the know also said that IOB and Central Bank of India are the top two candidates that have been favoured for privatisation, though the Bank of Maharashtra has also found favour for the exercise either this year or possibly later," the report says.

Earlier, NITI Aayog has submitted the names of a few PSBs and one public sector general insurer, which can be sold off under the government's new privatisation policy to the core group of secretaries on disinvestment.

Earlier, the Union government had indicated that banks under prompt corrective action (PCA) framework or weaker banks would be kept out of privatisation as it would be difficult to find buyers for them. This would have left three PSBs—IOB, Central Bank and UCO Bank out of the government's disinvestment plan.

Prior to the privatisation process, the government also undertook a merger of the State-run banks, amalgamating weaker banks with the stronger and larger ones. A total of 10 public sector banks were merged with effect from 1 April 2020.

With the merger coming into effect, India has 12 PSBs, down from 27 in 2017.

The government has budgeted Rs1.75 lakh crore from stake sale in public sector companies and financial institutions. The target, however, may turn out to be ambitious, given the global and domestic economic scenario amid the second wave of COVID-19. (Read: GoM May Consider Privatisation of IOB, Central Bank This Year)

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