As a part of an overhaul of the banking industry, India is moving to privatise more than 50% of its state-owned banks. This move is aimed at reducing the government participation & limiting the lenders to just five, government & banking sources said.
It can lead to effective privatisation of state-owned lenders. Currently, the plan is to sell majority stakes in Bank of India, Central Bank of India, UCO Bank, Bank of Maharashtra, etc.
Reduction of government owned banks from existing 12 to 5 could stabilise the deteriorating assets and give a good chance for the private lenders to enter into space.
This would be put before the cabinet for approval and the government is currently formulating the new privatisation proposal, the government official said.
Since COVID-19 is here to stay and the prospective vaccine or drug could be a year away, the governments worldwide are eyeing for new solutions. This privatisation plan to help to raise money by selling assets in non-core companies and sectors could help India which is strapped for funds.
Both the RBI and several government committees have recommended that India shouldn’t have more than five state-owned banks. Also, as per the government, there will be no more mergers. Just last year, the government had merged ten state-owned banks into four.
Nevertheless, the divestment plans may not happen due to unfavourable market conditions as there are a lot of bad loans because of the fallout from the coronavirus crisis.