PSB privatization : government may sell stake in IDBI Bank in FY 2021 but no decision yet on others bank.
• There is a buzz in the air about privatisation of some of the public sector banks (PSBs).
• There has been talk of privatising Industrial Development Bank of India (IDBI Bank) in financial year (FY) 2020–21.
• Of the disinvestment target for the year of 2.1 trillion, 90 billion was to have come from stake sale in Life Insurance Corporation of India (LIC) and the privatisation of IDBI Bank.
Why Privatization?
PSBs have underperformed in comparison to private banks
Huge NPAs at PSBs : when it comes to loan loses PSB are far ahead from private banks. Twelve public-sector banks (PSBs) recorded gross NPAs worth Rs 5.47 lakh crore, more than twice the size of the bad-loan pile of 19 private banks, which stood at Rs 2.04 lakh crore.
Inability of the government to keep pouring funds into PSBs
How to privatize ?
One option is to sell a controlling stake to a private entity in India.
• Who can buy ? We only knew a few big entities who are capable to buy PSUs.
Second option for the government is to let its equity stakes in PSBs drop below 50%.
• PJ Nayak Committee in 2014 recommended the same. This will lead to more powers to bank borads.
The Moral :
Any large-scale privatisation of PSBs appears to be fraught with problems.
• In the medium term, the best solution is improving governance at PSBs.
• Good, timely & transparent top appointments at PSBs.
• Adequate tenure to chief executive officers.
• Good quality independent directors on PSB boards.
• Play regulator rather than director.
• Nudge the PSB management through government nominees rather than through Department of Financial Services.
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