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Home » Explained: Why govt. is planning to privatise public sector banks?

Explained: Why govt. is planning to privatise public sector banks?

“We have submitted the names (of PSU banks) to the Core Group of Secretaries on Disinvestment,” a Niti Aayog official said.

Ground Report | New Delhi: Privatise public sector banks? Privatisation describes the process by which a piece of property or business goes from being owned by the government to being privately owned. It generally helps governments save money and increase efficiency, where private companies can move goods quicker and more efficiently.

Finance Minister Nirmala Sitharaman announced that the Narendra Modi government will divest its stake in two PSBs, apart from one general insurance company. While the FM did not name in her Budget 2021 speech the two banks the government plans to privatise, analysts point out Bank of Baroda (BoB) and Punjab National Bank (PNB) are possible candidates.

NITI Aayog handed over the names of banks

“We have submitted the names (of PSU banks) to the Core Group of Secretaries on Disinvestment,” a Niti Aayog official said. NITI Aayog has sent the names of these two public sector banks and a general insurance company to the Secretariat of the Committee on Disinvestment. All these will be made private by the end of this financial year.


Changes on the regulatory side to facilitate privatisation would start after the Cabinet approval. The members of the Core Group of Secretaries include economic affairs secretary, revenue secretary, expenditure secretary, corporate affairs secretary, legal affairs secretary, Department of Public Enterprises secretary, Department of Investment and Public Asset Management (DIPAM) secretary and an administrative department secretary.

In a hopeful note amid the surge in Covid-19 cases in the country, Das said that India’s revival of economic activity is expected to be “unabated”, despite a rise in infections in many areas. He also said that though the surge is a matter of concern, 2022 growth projections might not need to be cut. “Our preliminary analysis shows that the growth rate next year, that is, at 10.5%, which we had given, would not require a downward revision,” the RBI chief said according to the PTI report

These banks are Punjab National Bank, Union Bank, Canara Bank and Indian Bank, and Bank of Baroda and SBI that were part of an earlier round of consolidation. The government will soon take a call on the two banks and one general insurer that will be taken up for privatisation in the next fiscal year.

The government had in August 2019 undertaken a massive consolidation exercise merging 10 PSBs into four, which brought down their total number to 12 from 27. These banks are still in the process of consolidation and including them in the privatisation plan can be disruptive, it is felt.

The Niti Aayog’s recommendation to exclude these is in line with the thinking within the finance ministry that is keen on expeditious integration of systems at these banks.


Finance minister Nirmala Sitharaman had in her budget speech announced the government’s intent to privatise two PSBs & one general insurer in the next fiscal year. She has set a disinvestment target of Rs 1.75 lakh crore for FY22.

The right solution for correcting the functioning of PSBs would be putting in place better regulations and control mechanisms. If the government finds flaws in the functioning of PSBs, it has every reason to correct them, there is every reason and scope for the nationalisation of private banks, and not the other way round, if public and government interests converge.

How will privatization of banks affect its customers?

Whatever money the account holders have deposited in these 4 banks, there is no danger in it. Account-holders will benefit that after privatization, they will be able to get banking services like deposits, loans in a better way than before.

There will be a risk that in some cases they will have to charge more. For example, a minimum balance of Rs 1,000 is required to be maintained in the savings accounts of public sector banks. In some private banks, the minimum balance requirement increases to Rs 10,000.

What will happen to the employees?

The political parties in power have been avoiding converting public sector banks into private banks, as it also threatens the jobs of lakhs of employees. However, the present government has already said that in the event of a merger or privatization of banks, the jobs of the employees will not be lost. 

Bank of India has 50 thousand employees, while Central Bank has 33 thousand employees. There are 26 thousand employees in Indian Overseas Bank and 13 thousand in the Bank of Maharashtra. In this way, in total there are more than one lakh employees in these four government banks.

The Central Bank was formed in 1911. It has a total of 4,969 branches. Indian Overseas Bank was established on 10 February 1937. It has a total of 3800 branches.

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