Govt may also kickstart two small PSU lenders to privatization exercise

Government is likely to kickstart privatization in these banking sectors with stake sales in two small state-run banks, according to the analysts. Delivering her budget speech this Monday, finance minister Nirmala Sitharaman already said the government plans to privatize two state-run banks along with the IDBI Bank in the next fiscal.

Nirmala Sitharaman already said legislative changes will be introduced during the parliamentary session to enable the divestment. After the merger of some public sector banks into some last year, Sitharaman was expected to make these policy announcements on the privatization of state-run banks in the next fiscal year’s budget as the basic step towards overhauling the banking sector.

She, however, did not very specify the names of the other two banks that the government aims to privatize and the size of stakes that would be sold. Analysts expect the government to test waters by privatizing the smaller state-run banks that were excluded from the merger last year.

Six banks that were not part of these mergers, Punjab and Sind Bank and Bank of Maharashtra are very most likely candidates as much of the clean-up of the balance sheets has already taken place.

Both have already received a very significant capital infusion from the government in the last few years, which has always helped resolve their bad loans. Bank of Maharashtra’s gross non-performing assets as the percentage of total assets stood at 7.69% at the end of the September quarter.

Punjab and Sind Bank was the only bank to receive the total capital infusion of ₹5,500 crores this fiscal. Bank of Maharashtra exited the prompt corrective action framework after getting nearly ₹7,800 crores of the capital.

That already said concerns remain on how the government will proceed with the plan as lowering sovereign support could simply affect depositor confidence in these banks. Most of the successive governments had promised to privatize state-run banks.



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