If PSBs cannot be privatized, they run like standard banks

  • Their value will increase, enabling the government to raise additional funds by selling shares in them.

On the 15th and 16th of March, bank unions intend to strike to protest public sector banks’ proposed privatization (PSBs). Apart from IDBI Bank, finance minister Nirmala Sitharaman revealed plans to privatize two PSBs in the budget.

If the government wants to get a reasonable valuation when listing the Life Insurance Corporation of India (LIC), it must privatize IDBI Bank. The thought of an insurance firm buying a bank with nearly a quarter of its loans defaulted on is unappealing to potential investors.

“This was a machine that would allow the thread to be spun from cotton much more quickly than with human hands alone,” writes Daniel Susskind in A World Without Work: Technology, Automation, and How We Should React. As a result, it would have resulted in the loss of employment for those who worked as cotton spinners.

This period is no exception. What occurred at the dawn of capitalism is still occurring now. The government’s decision to privatize two PSBs upends the status quo for public-sector banking workers who wish to remain government employees.

“For example, from October 2012 to January 2014, the finance ministry issued 82 circulars to public sector banks,” according to the P.J. Nayak Committee report from May 2014. Dual oversight does not apply to private sector banks.”

This is largely due to the government’s use of PSBs to meet its social commitments and to boost the economy while it is struggling. These variables are discounted by the stock market when they are valued.This is something that Indian policymakers and politicians must consider. “The policies for controlling and fostering industrial growth do not have any social substance in them,” writes R.C. Bhargava, a former Indian Administrative Service officer and current chairman of Maruti Suzuki, in his book Getting Competitive: A Practitioner’s Guide for India.As a consequence, whether or not PSBs are privatized, they should be managed as proper banks. If these banks are not privatized, the government’s stake in them reduced to 33%, which would enable them to raise more money.

PSBs’ market capitalization will continue to grow as investors see them run as proper banks rather than government entities seeking to accomplish social goals. Once the stock market has reasonably priced PSBs, the government will sell a portion of its holdings each year and use the proceeds to finance its social goals.It may also use some of the funds to entice all banks, not just PSBs, to help it achieve some of its social goals. Nothing boosts service delivery more than a healthy rivalry at the end of the day.On the other hand, regardless of whether the government privatizes PSBs or not, the banking sector all about to privatize. PSBs accounted for 75.1 per cent of India’s gross unpaid loans in March 2010. It had fallen to 57.3 per cent in September 2020.


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