‘privatization of public sector banks’
On 1st feb 2021, The finance minister of india ,Ms nirmala sitaraman presented the union budget of 2021. There were many changes made in previous budget seeing the emergency call and compensation due to covid-19.
One of the expected change made by central govt was privatization of two public sector banks. However names of the banks are not revealed but most expected bank could be bank of baroda (BoB) and Punjab national bank (PNB) .
1.The very first reason could be the better performance of private banks over public sector banks on profitability and stake holding.
According to the data of 2019-20 the private sector banks have performed exceptionally good on credit and deposit growth.
Going through the data of march 2019, private sector banks have crossed 20% on profit while public sectors are hanging around 5 to 10% of profit.
Going through another data of RBI, sharing loans in private sector has risen from 21.26% in 2015 to 36% in 2020. On the other hand public sector loan sharing has fallen gradually from 74.28% to 59.8% in subsequent years.
2.There are 12 banks working under the central government. But not all banks are financially rich. such banks are named as weak banks. These banks gradually face lose and these losses are unfortunately compensated by the central govt. As a matter of fact, govt compensate these losses from the public budgets and hence didn’t get much capital to invest on public work departments and developments.
According to the data of 2019, central govt have front loaded 70,000 crores into public sector banks and 80,000 crores in FY 2018( financial year 2018) which was probably less than the capital invested on infrastructure and other economic sectors.
3. Competition has got heated up in the market after the RBI allowed more power to private banks in 1990s. There is expand in the market share through products new produts, technology and better services and had also attracted many foreign policies and valuations.
On the other side, public sector banks are just like painted boat in the era of artificial visuals. They have made very small success in such long time.
As per the data of RBI’s recent financial stability report, HDFC bank ( established in 1994) has a market capitalization of over 8.8 lakh crores while SBI has command over 3.34 lakh crores in the sector of stake holding.
These could be the reason of privatising the public sector banks …so that govt could get freed up from compensating bank loses and could make valuable step on other economic sector to boost GDP.
Beside these advantages there are also some disadvantages of privatization of public sector banks which should get concern. Let’s check them out —
1. There are many news clipping about the frauding of private banks.
2. A private bank has to follow many protocols and codes assigned by RBI but most of the private banks just run on negotiations.
some news headlines about frauding and issues on private banks –
▪︎ ICICI bank’s MD and CEO were arrested for allegedly expanding dubious loan
▪︎ YES bank was not given the extension by RBI and now faces the many investigations by various agencies.
3. Every private bank has to show overall progress report to RBI once in a year..but most of the public sector banks just hide the official and real documents to prevent the tax payment.
4. They rate high interest on loans which could make suffer the small farmers and small scale corportaive sectors like NGOs etc.
This action can prove to be profitable and fruitful if central govt took proper and selective actions towards the frauding and cheating by private banks.