Bank Privatization Update: New panel formed to select banks for privatization

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The government plans to review the list of state-run banks slated for privatization amid improved profitability and a significant drop in non-performing loans.

A new panel with representatives from the finance ministry, NITI Aayog and the Reserve Bank of India (RBI) is being considered to draw a fresh list of candidates for privatization, two people close to the matter said on condition of anonymity.

What New panel will do?

Amid improving stability and a significant drop in the non-performing assets (NPAs), the Centre is planning to review the list of public sector banks (PSBs) up for privatisation.

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The panel may also decide the quantum of shareholding that the government would dilute in banks while deciding weightage to be given to banks with improved financial parameters and lowered bad loans.

12 PSBs in India

India currently has 12 PSBs, namely, State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Punjab & Sind Bank, Indian Bank, Union Bank of India, Bank of India, Bank of Maharashtra, Central Bank of India and Indian Overseas Bank and UCO Bank.

Profit reported by Banks

In the quarter that ended on June 30, these banks reported a net profit of Rs 34,418 crore, more than double of Rs 15,307 crore recorded in the same quarter last year. Moreover, the gross NPAs have improved from 14.6 per cent in March 2018 to 5.53 per cent in December 2022.

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Government Plans

Earlier, the Centre was looking to privatise small banks, including those that had just come out of RBI’s prompt corrective action (PCA) plans. Under PCA, the central bank imposes curbs on lending, dividend payments and compensation.

According to Mint, this would have put the Central Bank, Indian Overseas Bank and UCO Bank on the list of privatisation. However, now, these banks have reported improved asset quality and higher profits.The report added that privatisation may only be continued in 2024-25, after the national elections scheduled for next year.

The names are first shortlisted, and later it is approved by the cabinet. From 1 April 2020, a total of 10 PSBs were merged. Now, India has 12 public sector banks, down from 27 in 2017.

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