Privatization of PSBs likely by Sep; 20% cap on foreign holdings to go

Although efforts are on to introduce the amendment in the ongoing budget session of Parliament, cabinet approval for the changes may take some time, the officials said, requesting anonymity. Chances are that the amendment is likely to spill over to the monsoon session, they said, adding the aim is to ensure privatization of at least one bank by September.

“The process to facilitate the privatization of public sector banks has gained momentum as the inter-ministerial consultations are in the final stages to decide the framework for the move. Once the legislative exercise is completed, the group of ministers on disinvestment will finalize the names of banks to be privatized. The rest of the process would be completed quickly to see that privatization of at least one bank is completed by early next fiscal,” said one of the government officials cited above.

By privatizing state-run banks, the government wants to bring in more efficiency and avoid the burden of having to recapitalize these lenders periodically. While presenting the budget for the current fiscal, finance minister Nirmala Sitharaman announced that two state-run banks, along with IDBI Bank, would be privatized in FY22. Federal think tank NITI Aayog had shortlisted the two PSBs for privatization but did not name them. Sitharaman had also said that one general insurance company would be sold off in the current fiscal.

However, disruptions caused by the pandemic have delayed the plan. The government is also waiting for investor feedback on IDBI Bank to iron out any regulatory issues involved in privatizing the two public sector lenders. Separately, consultations with the banking regulator are on to resolve regulatory issues.

Officials aware of the development said a panel of secretaries had selected Central Bank of India and Indian Overseas Bank as possible candidates for privatization. The names identified by the panel would be put up before the group of ministers for approval once the legislative process is completed.

The officials said that Indian Overseas Bank and Central Bank of India are the two candidates that have been favoured for privatization, though Bank of Maharashtra has also found favour for the exercise either next year or later.

Queries emailed to a finance ministry spokesperson on Tuesday remained unanswered till the time of going to press. Questions sent to the secretary, department of financial services, on Tuesday also remained unanswered.

The government had earlier indicated that banks under prompt corrective action (PCA) framework or weaker banks would be kept out of privatization as it would be difficult to find buyers for them. However, UCO Bank and IOB both were taken out of PCA in September on improved financials, with the banks reporting profits while significantly reducing bad loans. Only Central Bank of India is still under PCA, but it is expected to exit the framework soon because of a marked improvement in its financials.