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More Banks to be Privatized; India to have 5 Govt Banks

Bank Privatisation

India is looking to privatize more than half of its state-owned banks 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 first part of the plan would be to sell majority stakes in Bank of India, Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab & Sind Bank, leading to effective privatization of these state-owned lenders, a government official said.

“The idea is to have 4-5 government-owned banks,” said one senior government official. At present, India has 12 state-owned banks.

According to government officials, this plan would be presented in a new privatization proposal the government is currently formulating, and this shall come into notice before the cabinet for approval.

India’s Finance Ministry declined to comment on the matter.

This privatization plan is set apparently to help to raise money by selling assets in non-core companies and sectors when the country is devoided for funds due to a lack of economic growth caused by the coronavirus pandemic.

Several government committees and the Reserve Bank of India have recommended that India should have not more than five state-owned 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.

Last year, the government had merged ten state-owned banks into four, creating a handful of larger banks in the process.

“Now we are thinking of selling the unmerged banks to private players,” the government official said.

But the government’s privatization plan is being worked out when the banks may face rising bad loans later this financial year because of the fallout from the coronavirus crisis.

The divestment plans may not happen in this financial year due to unfavorable market conditions, the sources said.

India expects bad loans at its banks could double after the crisis brought the economy to a standstill. Indian banks already had 9.35 trillion rupees ($124.38 billion) of soured loans, equivalent to about 9.1% of their total assets at the end of September 2019.

As a result, the government may need to pump in nearly $20 billion into its state-owned banks.

Kolkata’s UCO Bank reported a net profit of Rs 17 crore for the March quarter, against a net loss of Rs 1552 crore in the year-ago period, helping it to turn return on assets (RoA) to barely positive. Even as RoA needs to be positive for the full year for any bank to get out of PCA, but RBI had taken a liberal view in the case of other lenders such as Bank of India or Bank of Corporation Bank.

On Thursday, Indian Overseas Bank also reported favorable numbers to place its claim for getting out of PCA.

Bank of Maharashtra share price zoomed 14 percent, followed by the Central Bank of India that surged over 11 percent. Bank of India jumped more than 7 percent at 0925 hours. UCO Bank was up 9 percent while Indian Overseas Bank gained 5 percent.

Bank of Maharashtra was one of the most active stocks on NSE in terms of volumes, with 70,79,442 shares being traded.

Shares of Indian Overseas Bank (IOB), Punjab & Sind Bank hit the upper circuit on NSE. For IOB, there were pending buy orders of 1,989,185 shares, with no sellers available. In Punjab & Sind Bank, there were pending buy orders of 237,105 shares, with no sellers available.

The Nifty PSU Bank index jumped over 2 percent in the morning trade led by State Bank of India, Union Bank of India, Bank of Baroda and Indian Bank.

It must be noted that the government is using the coronavirus epidemic as a straw to conceal their shortcomings. Catastrophic policies that were depicted as an economy booster ended up widening the path ahead of a recession. Consumption denial, which is one of the main factors behind an economic downfall, has been made cost-effective through the stagnant growth of GDP.

For such an economy that perhaps, needs structural changes rather than anything at present, is instead focusing on making the nation OLX headquarters. This anti-socialist direction might seem attractive, but socialism is the only way ahead of the Indian economy.

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