Government to reduce state-owned banks

Government to reduce state-owned banks from 12 to just 5

India Government to reduce state-owned banks from 12 to just 5 as it seems to be planning to privatize more than half of its state-owned banks. This majorly been done to reduce the number of government-owned lenders to just five as part of an overhaul of the banking industry, government and banking sources said.

The government is supposedly taking this major step of privatization plan in order to help in raising money by selling assets in the non-core companies and sectors. Due to a lack of economic growth caused by the coronavirus pandemic, the country presently is strapped for funds.

According to a report, the first half of the plan is to sell the majority stakes in Central Bank of India, Punjab & Sind Bank,  Indian Overseas Bank, Bank of India, UCO Bank and Bank Maharashtra. This will be leading to the effective privatization of these state-owned lenders. At present, India has 12 state-owned banks. 

As per the information of a government official, this plan has been scheduled to be laid out in a new privatization proposal that the government is currently formulating. This proposal would then be put before the cabinet for approval. A senior government official is quoted saying “The idea is to have 4-5 government-owned banks,” on the matter. India’s finance ministry Nirmala Sitharaman has allegedly declined to comment on the matter.

The government had merged ten state-owned banks into four in 2019. Thus, creating some larger banks in the process. “The government has already specifically specified that there would be no new more mergers between state-owned banks. , presently as per a senior official at a state-owned bank, the only option for them is to divest stakes. A government official said, “Now we are thinking of selling the unmerged banks to private players,” 

Several government committees as well as the Reserve Bank of India (RBI) have recommended reportedly saying that India should have not more than five state-owned banks. This privatization plan is being worked out by the government at a time when the banks are supposedly facing rising bad loans later this financial year because of the fallout from the coronavirus crisis.

As per a source, it is difficult for the divestment plans and that may not happen in this financial year due to unfavorable market conditions.” India expects the bad loans on its banks could double as the coronavirus pandemic crisis has brought the economy to a standstill. Indian banks already had an of soured loans of 9.35 trillion rupees ($124.38 billion). It is equivalent to about 9.1% of its total assets at the end of September 2019. Hence due to this, the government may need to pump in nearly $20 billion into its state-owned banks

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