The Indian government is planning to reduce the number of state-owned banks from 12 to 5, banking sources said. The move is being taken to sell the existing majority of stakes of the banks to pump finances into the drying state-owned lenders.
To do this, the privatization of two thirds of the government banks is getting looked at. The primary step for achieving this is to auction the shares in Bank of India, Indian Overseas Bank, Bank of Maharashtra and Punjab & Sind Bank, Central Bank of India and UCO Bank, according to a senior government official.
Confirming the news, one official said, “The idea is to have 4-5 government-owned banks.”
As opposed to the 12 state-owned banks functioning currently, 5 will continue to run while the rest will be transformed into private ones as proposed in the government’s new formulation. The plan would then be sent to the cabinet for its approval.
When the media houses reached the finance ministry, they refused to speak on the subject.
This privatization plan is aimed to increase finances by selling assets in non-core companies and sectors where the country is quenched of money in response to the decline in economic growth, all thanks to the dreadful pandemic.
Supporting this proposal, many government committees and the Reserve Bank of India (RBI) advised for the banks to be reduced to not more than five.
Previously, ten state-owned banks were merged to form four, thereby leading to the creation of a few larger banks.
“The government has already said that there will be no more mergers (between state-owned banks) so the only option for them is to divest stakes,” a senior official at a state-owned bank said referring to the merge taken place last year.
“Now we are thinking of selling the unmerged banks to private players,” the government official said.
According to officials, banks are likely to undergo a series of bad loans in later half of this financial year due to the lack of resources and fallout caused by the present health crisis. The divestment plans may not happen in this financial year due to unfavorable market conditions, the sources said.
Adding to the already grim situation, experts anticipate that banks could face double the number of bad loans resulting because of the downfall of the economy. The market had come to a halt in the past months which triggered the losses. Indian banks already had Rs 9.35 lakh crore of soured loans, equivalent to about 9.1 per cent of their total assets at the end of September 2019.
To compensate for the grave losses, Indian government needs to fuel the state-owned banks with approximately $20 billion. This can help the sunken economy to revive itself.
