The Finance Minister, Nirmala Sitharaman, while addressing the business leaders, chartered accountants and tax professionals in Mumbai stated that the central government will work with the Central bank of India Reserve Bank of India to execute the plan of the privatization of the banks.

The union minister further said, the GoI have not made plan to form any bank investment company in order to house the government’s bank holdings.

Backdrop

  • The Union finance minister has announced about the privatisation of two banks recently while presenting the Union budget 2021.
  • This announcement was made under the Centre’s disinvestment plan.
  • But the bank unions have opposed the plan.

Privatisation of Banks

The Government of India is planning for the privatisation of more than half of the state-owned banks. GoI is planning so in order to reduce the number of government-owned lenders to 5. Currently, India has 12 state-owned banks. In 2019, GoI has also merged 10 state-owned banks into 4 large banks.

Positives of Privatisation

The privatisation on banks is beneficial in understated manner:

  1. Privatisation will help to address the bad loan and Non-Performing Assets issues.
  2. Privatisation would also help in ensuring a better financial performance. It would comprise of a strong financial institution as a significant shareholder in the privatisation.
  3. The Privatisation will reduce the liabilities of the government.
  4. It would also be helpful in reducing the fiscal deficit.
  5. It will also finance the revenue expenditure by revenue receipts in long term.
  6. Privatisation will bring in the environment of minimum government and maximum governance.

Negatives of Privatisation

However, the plan of privatisation is criticized for diluting the idea of inclusive banking which is practiced now. Inclusive banking was the guiding principle during the nationalization of banks. Further, government of india will face difficulties in providing low-cost financial services to rural and poor sections because, the private sector banks don’t share the social responsibilities of the GoI.

Govt to work with RBI on bank privatisation Govt to work with RBI on bank privatisation