Former Reserve Bank of India Governor De Subbarao has suggested that the government develop a 10-year roadmap for the privatization of all Public Sector Banks (PSBs) as it will provide much-needed predictability to stakeholders.
Subbarao further said that the big bang approach to privatizing state-owned banks is undesirable, but at the same time the problem should not be put behind.
“Ideally, we should have a roadmap, perhaps over 10 years, to privatize all PSBs.
“This will give much-needed predictability to all stakeholders,” he told PTI.
Meanwhile, Mr Subbarao said the government should also consider converting public sector banks into banking firms so that they would come under the umbrella of a unified regulation of the Reserve Bank of India.
In the Union Budget 2021-22, the government announced its intention to privatize two PSBs per year and approved a policy of strategic divestment for public sector enterprises.
State think tank NITI Aayog has already proposed two banks and one insurance company to the core group of divestment trustees for privatization.
According to Subbarao, the impact of the privatization of PSBs on the Indian economy will be in two respects.
“The overall efficiency of the banking system will improve as public sector banks, freed from the obligation to achieve social goals, will seek to maximize profits like their private sector counterparts,” he said, adding that the pursuit of social goals such as financial inclusion and priority sector lending, may be compromised, to some extent. , at risk.
However, Subbarao said he believes the calculus of the net cost benefits of privatization will be positive.
In 2020, the government merged 10 nationalized banks into four major lenders, thus reducing the number of public service offices to 12.
The former Reserve Bank of India Governor observed that in the present stage of development in India, the country should use other tools to achieve social goals rather than continuing to place the burden on depositors and borrowers of the banks.
A research paper published in the August 2022 issue of the RBI Bulletin states that “the government’s gradual approach to privatization can ensure that there is no void in achieving the social goal of financial inclusion.” PTI BKS CS HVA
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