Title : PRIVATISATION OF PSBs

Date : Dec 20, 2021

Description :

GS III

 

Topic à Indian Economy

 

• Context:

 

• This fiscal year, the budget contemplates privatising two public sector banks.

 

• What is the requirement of this move:

 

• Capital injections and governance changes have failed to appreciably improve the financial status of public sector banks over the years.
• Many of them have more stressed assets than private banks, and they also outperform them in terms of profitability, market capitalization, and dividend payment history.
• Through recapitalisation bonds, the government invested Rs 70,000 crore in government-run banks in September 2019, Rs 80,000 crore in FY18, and Rs 1.06 lakh crore in FY19. The government combined ten public sector banks into four in 2019.

 

• The move's significance and ramifications are as follows:

 

• The privatisation of two public sector banks will kick off a long-term initiative that envisions only a few state-owned banks remaining, with the remainder being combined with strong banks or privatised.
• This will free the government, as the largest owner, from providing year after year equity support to the banks.

 

• What are the problems that PSU banks are facing:

 

• PSU banks continue to have large non-performing assets (NPAs) and stressed assets when compared to commercial banks, albeit this has begun to decline.
• The government would need to invest stock into weak public sector banks if the Covid-related regulatory relaxations are rescinded.

 

• Nationalisation of PSBs:

 

• Bank nationalisation is a term used to describe the process of a bank being nationalised
• On July 19, 1969, Prime Minister Indira Gandhi, who was also the Finance Minister at the time, decided to nationalise the 14 largest private banks.
• The goal was to align the banking industry with the government's socialist policies at the time. The State Bank of India was nationalised in 1955, and the insurance sector was nationalised in 1956.
• Many committees advocated reducing the government's share in public banks to less than 51%:
• The Narasimham Committee advocated 33%, while the P J Nayak Committee proposed less than 50%.

 

• Source à The Hindu à 17/12/21 à Page Number 8

Tags : privatization of banks