At a recent event held in Kolkata by the Confederation of Indian Industry (CII), top bankers came together to discuss the possibility of the government starting the disinvestment process in Indian banks. The discussion highlighted the current strength of the banking sector, with many experts agreeing that this could be a crucial turning point. With the sector performing well and bank valuations at a high, several participants emphasized that now might be the ideal time for the government to pursue disinvestment. Many believe that moving forward with this strategy could boost the sector’s growth and bring significant financial benefits.
Why Disinvestment Now?
Bankers highlighted that several government-owned banks have a majority stake, with more than 75% of shares held by the government. According to Securities and Exchange Board of India (SEBI) regulations, a minimum of 25% of shares must be publicly held. This creates an opportunity for the government to sell some of its holdings, particularly in banks where it has over 90% ownership.
Ashwani Kumar, the managing director of UCO Bank, emphasized the current favorable conditions in the banking sector. He noted that the health of Indian banks has improved significantly, marked by low non-performing assets (NPAs) and a strong capital base. This robust financial standing means the government could potentially secure a good price during the disinvestment process. This year, banks have made good profits and performed well. Their share prices are high, which makes it a good time for the government to sell some of its stake and benefit from the strong market.
Net Profit of PSU Banks
| Bank Name | Net Profit (Rs. cr) |
|---|---|
| SBI | 61,076.62 |
| Bank of Baroda | 17,788.78 |
| Union Bank | 13,648.31 |
| Canara Bank | 14,554.32 |
| Bank of India | 6,317.92 |
| Indian Bank | 8,062.94 |
| Punjab & Sind | 595.42 |
| Bank of Maharashtra | 4,055.03 |
| IOB | 2,655.62 |
| Central Bank | 2,549.06 |
| UCO Bank | 1,653.74 |
| PNB | 8,244.62 |
Mcap of PSU Banks as of 20 September 2024
| Company Name | Market Cap (Rs. cr) |
|---|---|
| SBI | 697,815.45 |
| Bank of Baroda | 121,759.72 |
| PNB | 119,414.46 |
| IOB | 110,503.50 |
| Canara Bank | 95,196.48 |
| Union Bank | 94,236.86 |
| Indian Bank | 68,560.47 |
| UCO Bank | 57,352.73 |
| Central Bank | 50,957.11 |
| Bank of India | 50,238.69 |
| Bank of Mah | 41,369.38 |
| Punjab & Sind | 36,742.38 |
The market value of Public Sector Banks (PSU Banks) is at an all-time high, making it an ideal time for the government to consider selling some of its stake. Since the share prices are high, the government can earn a significant amount of money by divesting in these banks. This strong market position makes divestment more attractive and profitable for the government.
Strong Financial Health
The latest figures show that banks’ net NPA ratio has fallen to a multi-year low of just 0.6%. Furthermore, the capital adequacy ratio for public sector banks stands comfortably at 15.53% as of March. These statistics indicate a stable banking environment, which could make disinvestment more appealing. Rajnish Kumar, former chairman of the State Bank of India, also voiced support for disinvestment, stating that while it is a challenging decision, it is one that the government will eventually need to make.
Focus on Expanding Bank Credit
During the same event, Hardik Mukesh Sheth, director at the central government’s banking department of financial services, shared the government’s goals for the banking sector. He mentioned the ambition to increase the share of bank credit to the GDP, which is currently around 56%. This figure is significantly lower than the nearly 100% seen in advanced economies.
Sheth pointed out that for the past seven years, there has been a strong focus on reforming public sector banks. He highlighted that banks are now investing 6 to 8% of their total expenditure on technology upgrades to enhance efficiency and combat cybercrimes. In the last three financial years alone, public sector banks have spent approximately Rs 47,000 crore on upgrading and developing their services.
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