NITI Aayog presents privatization list, Bank of Maharashtra, Central Bank top candidates
NITI Aayog has presented the list of privatization of banks, in which Bank of Maharashtra, Central Bank has emerged as the top candidate.
NITI Aayog has submitted the names of public sector banks and insurers to the core committee of secretaries on disinvestment, which are to be privatized in the current financial year under the disinvestment process. These include the names of two public sector banks (PSBs) and one public sector general insurer. Sources said the Department of Investment and Public Asset Management (Deepam) and the Department of Financial Services (DFS) will scrutinize the names suggested by NITI Aayog and finalize the list of potential candidates in the financial sector for privatization this year.
People in the field also said that the Bank of Maharashtra and Central Bank are the top two candidates whose names have been included in the privatization process. Although the name of Indian Overseas Bank may also appear in this list either this year later.
Additionally, United India Insurance may be selected as a candidate for privatization among the three general insurers considering its relatively better solvency ratio, according to sources.
However, financial sector experts also argue that Oriental Insurance, with the lowest solvency ratio of the three, maybe favourable, as it does not have overseas operations and may be easier to invite private investors.
The government had earlier indicated that banks or weak banks would be kept out of privatization under the prompt corrective action (PCA) framework, as it would be difficult for them to find buyers. This would have left three PSBs - Indian Overseas Bank, Central Bank and UCO Bank out of the government's disinvestment plan.
But they can be brought out of PCA, as there are clear signs of improvement in some key parameters like profitability and asset quality (in terms of net NPAs they have increased provisioning) in the last 3-4 quarters. This may allow them to be considered for privatization.
Also, both Bank of Maharashtra and Central Bank are west-centric banks, where the public sector bank presence is already strong, allowing more entry into the private sector.
Simultaneously, it was also decided that PSBs should also no longer be considered part of the consolidation exercise for privatization. This led to five large PSBs – Bank of Baroda, Punjab National Bank, Canara Bank, United Bank of India and Indian Bank as well as other PSBs, which merged with them as part of the consolidation exercise. Also, State Bank of India is not being privatized.
This has opened up space for privatization of only six banks – UCO, IOB, Central Bank, Bank of Maharashtra, Punjab and Sind Bank and Bank of India. The selection is from this list.
The government has infused capital in Punjab and Sind Bank. With this, it will have to wait at least two years before considering privatization. Bank of India is a very big bank, which can also create problems in finding buyers for it at this time. With UCO Bank, the government may prefer the presence of a nation-run bank in the eastern part of the country. In this context, the candidate should be from among the remaining three banks.
In this year's budget, Finance Minister Nirmala Sitharaman announced that two state-owned banks will be privatized along with IDBI Bank in FY22. He also said that it will be sold to a general insurance company in the current financial year.
On May 5, taking forward the process of privatization of IDBI Bank, the Cabinet Committee on Economic Affairs (CCEA) gave its in-principle approval for strategic disinvestment along with transfer of management control in PSBs.
The Finance Minister, while giving a budget speech on February 1, announced a capital infusion of Rs 20,000 crore in nation-owned banks for the financial year 2021-2022.
Before the process of privatization, the government also merged public sector banks and merged weak banks with stronger and bigger banks. A total of 10 public sector banks were merged with effect from April 1, 2020.
With the merger taking effect, there are currently 12 public sector banks in India, up from 27 in 2017.
The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions. However, given the global and domestic economic scenario amid the second wave of COVID-19, the target could be ambitious.