GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
GS-3: Indian Economy & challenges
Privatisation of Public Sector Banks
Context: Parliamentary standing committee on finance noted that the current stress in the banking sector is transient. Rather than allowing this temporary pain to be an alibi for privatising state-owned banks, it suggests these lenders be empowered to deal with the present challenges.
However, there are counter arguments that do not agree with the views expressed by Parliamentary Panel
Recoveries can help PSB balance-sheets only up to a point.
Ultimately, to survive and run efficiently, the most pronounced is that of growth capital, for which most state-owned banks are dependent on the government.
Thus, precious taxpayer money will be needed to capitalise them. Better alternative is to privatise.
Tough competition from Private Banks in coming years
Simply taking bad loans off the books of public sector banks will not make them more efficient.
Today, state-owned lenders may have a clear advantage over their private-sector counterparts when it comes to garnering deposits, but they are losing market share.
PSU-banks’ share of deposits fell to 68.5% in FY20, from 69.24% in FY19, while their share of loans and advances fell to 62.1% from 63.9%.
In FY21, loan growth at PSBs was a paltry 3.2% while, for the private sector banks, this was 9.9%.
Technology will be critical for banking in the years ahead, and the PSBs have let the private-sector banks take the lead on this.
In this light, the arguments for privatisation gets stronger
Government interference will keep them inefficient
The bigger problem though is control and interference by the government, which prevents PSBs from hiring enough talent needed to stay competitive in the current environment.
They will, thus, continue to be hobbled by outdated systems and practices.
Privatising poor performing Banks will reduce the burden on Government and also leads to optimum utilization of resources.
Conclusion
India should have reversed the ill-advised 1969 bank nationalisation policy in 1991 when the economy was liberalised. Three decades later, most PSBs need support. Too much taxpayer money has been spent on them, it is time to let them go.
