To Privatise Banks or Not


Bank employees across the country will go on a two-day strike on March 15 and 16 against the government’s bid to privatise the nationalised banks.

The Finance Minister had announced in this year’s union budget speech that she proposed to privatise two banks this year.

However, the Niti Aayog has short-listed four mid-sized second tier banks among a dozen Public Sector Banks (PSBs). The listed banks are Bank of India, Central Bank of India, Indian Overseas Bank and Bank of Maharashtra.

No doubt, this is a bold move on financial reforms. It will enhance competition and improve efficiency. It will also reduce pressure on the government for recapitalisation of these PSBs.

But the issue is complex in nature. It will be a huge challenge to translate into action. Handing over PSBs to Corporates is politically incorrect and inadvisable.

Private banks have their own legacy issues and a different culture altogether. A lifestyle with high pay and rapid promotion coupled with considerable work pressure with no job security may not be a preferred choice for many.

Looking to the stringent norms of RBI, Foreign banks are also not likely to go for setting up a subsidiary, as a number of them have already pared their operations in India.

Finally, it will rest on private investors, for whom low valuation (though fortunately sensex now is near all-time high) and big chunks of bad loans may be non-starters.

Moreover, their first priority will be to make such banks profitable for which they will go for rationalising branches and reducing number of employees. Such unpopular steps will be definitely met with resistance from both general public and trade unions.

The present staff strength of the four short-listed PSBs is more than 120000. It must be ensured that they are not retrenched on some pretext and their interests are also protected in privatised banks.

A precedent, however, lies in case of Axis Bank, that started off as UTI Bank, a government entity But when it was privatised, it was a very small entity compared to PSBs now. The issues of employee, capital infusion, bad loans, areas of operations, government sponsored schemes etc are now enormous.

All stakeholders need to be consulted and taken into confidence to avoid confrontations. It is better to start with one or two banks as experiment before going the whole hog for privatisation of PSBs and general insurance companies, as proposed by the government.

— Kaushal Kishore

16 Comments

  1. Complex is the keyword here. Remember my comment on economy and rats? I get the same feeling here, although if I were able to sit at your feet, Kaushal, for some time, you, in your wisdom would be able to enlighten me, no doubt, about it.
    thank you.

    Joanna

    Liked by 1 person

    1. Thanks a lot, Joanna, for such a generous praise that I may not deserve. Don’t put me on such a high pedestal, please. It would be my pleasure to tell you about banking in India, but it may not be of direct relevance to you. Thank you, Joanna again.

      Like

  2. You are wrong here; I like to learn things for the pleasure of knowing, disregarding the relevance to me. This is why I have such empathy with Swamiji. We were both interested in installing electricity by the electricians, simply to just KNOW.

    Joanna

    Like

  3. I have to thank you here (for now) for your wonderful. detailed commentary about Lipton’s book.
    This wretched WordPress took your comments away and I have to retrieve them; luckily I read them in my email first!

    Joanna

    Liked by 1 person

    1. My God, did it go to spam? I’ll also have to check mine every alternate hour. But thanks for your kind gesture, Joanna. Much appreciated.

      Like

  4. A complex issue but probably best to start in a limited way and possibly later the result will be a mixture of private and nationalised banks. A very interesting post, thank you.

    Liked by 1 person

    1. A mixture is already there, but government wants to consolidate the structure. Both private and public sector banks have their own pluses and minuses for both public and employees. Thanks, Ashley, for taking time to read and comment 🙏

      Liked by 1 person

  5. What a difficult situation this is. I always have to ask myself when dealing with public policy: does this decision help all the people, or does it only help a few people? If it helps everyone, then why change it so only a few people (shareholders, owners) get to profit?

    Liked by 1 person

    1. It is a complex question. But there is always some positives and negatives of every aspect. The government of the day takes decisions what they think are in the interest of public in the given circumstances. There was a time when the government decided to nationalise almost all big banks. And everytime, they came up with reasons, we may agree or not. Thank you, Alisen, for taking time to read and sharing your beautiful thoughts.

      Liked by 1 person

  6. Interesting and informative. Thanks for sharing but sounds like you do not support the privatization. Or is that an assumption on my part?
    There are obviously pros and cons for the decision. But to privatize the Central Bank? Is this the nation’s monetary policy institution or merely another ABC bank?
    Any government decision to privatize is primarily as a result of its parastatals not being efficiently and effectively managed. I do agree however that the privatization could be done one or two banks at a time (rather than the four at once) and that concerns for employees livelihood must be taken into consideration.

    How did the strike go?

    Liked by 1 person

    1. Central Bank is just one more nationalised bank. The name is a bit misleading. The real central bank of the country is known as Reserve Bank of India.

      I’m not in favour of privatisation of all nationalised banks, as they are in the forefront of implementing the government schemes. But I also believe that it is not the job of the government to run banks, hotels or airlines. The government has to govern and regulate. So in my view, banks, barring few, should be given in private hands to ensure efficiency.

      The strike went as usual with no much impact. With ATMs and digital banking available 24×7, who bothers if banks are not functional for a day or two. Thanks a lot for taking so much interest and sharing your thoughts 🙏

      Liked by 1 person

      1. Ah, the Reserve Bank of India. Good to know.
        Thanks for educating us all. I understand your stance on the privatization and I hope that it is all for the good of all (citizens and country).

        On the strike, a strike is not a strike if no impact of the strike is felt by anyone. We wouldn’t know if the banks felt the strike though. Next time, no-one will take them serious.

        Overall, thanks for sharing.

        Liked by 1 person

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