While announcing the Budget 2021, Finance Minister Nirmala Sitharaman said that the government stakes in at least two public sector banks will be sold in the next financial year. However, the names of these two banks were not disclosed during her speech. In order to successfully enable the disinvestment plan, necessary legislative changes will be brought by the government.
In simple terms, disinvestment refers to a process where governments sell their assets or stakes in an organization. By following this, they reduce the expenditure and focus on resource reallocation so as to increase the financial returns.
Previously, in 2019, IDBI Bank Ltd went through disinvestment, where Life Insurance Corporation of India (LIC) bought its majority stake. Talking about LIC, the budget categorically stated that the Initial Public Offering (IPO), which has been on the cards for two years now, will be released by the year-end. This will be executed as a part of the government’s overall disinvestment plan worth Rs 1.75 lakh crore.
Experts suggest that shared ownership with private players is expected to introduce transparency in the system while catalyzing its efficiency. Although the influence of government on banking will be reduced, the resource-saving created through privatization could help weak lenders such as small-scale banks.
However, it will be a fine line to tread. Selling stakes in large banks could introduce market distrust. People continue to follow a safety vs lucrative returns ideology while choosing between the public sector and private banks. Mostly, the former gets preference. This will have a clearer picture after the names of the banks are released.
On the other hand, finding buyers for smaller financial entities will be difficult as they are not much of an asset. This will amount to a heavy cut on the price of small banks for private players.