Govt To Reduce Number Of PSU Banks To Just Five

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India is looking to privatise more than half of its state-owned banks to reduce the number of government-owned lenders to just five,
As part of an overhaul of the banking industry, government and banking sources said.

First, to sell majority stake in PSB

The first part of the plan would be to sell majority stakes in-
Bank of India (BOI.NS),
Central Bank of India (CBI.NS),
Indian Overseas Bank (IOBK.NS),
UCO Bank (UCBK.NS),
Bank of Maharashtra and
Punjab & Sind Bank (PUNA.NS),
Leading to an effective privatisation of these state-owned lenders, a government official said.
Such a plan would be laid out in a new privatisation proposal the government is currently formulating,
This would be put before the cabinet for approval.

The government is working on a privatisation plan
To help to raise money by selling assets in non-core companies and sectors
When the country is strapped for funds due to lack of economic growth caused by the coronavirus pandemic.

Several government committees and the Reserve Bank of India have recommended that India should have not more than five state-owned banks.
The government has already said that there will be no more mergers.
Operational efficiency gains will reduce their cost of lending
Building NextGen Banks
Enhanced capacity
Strong national presence
Global reach

Banks were nationalised 50 years ago in a different era, in a different context.
PSBs rendered commendable service to the nation by deepening bank penetration into the hinterland and implementing a variety of anti-poverty programmes.

Do we still need PSBs?
Isn’t the financial sector deep enough to take care of financial intermediation without the government at the steering wheel?
Aren’t there better uses for the government’s mind space and its time?

Ownership is just one contributor to governance.
Even some private banks have also been poorly governed.
So we need to look at pragmatic ways to improve governance across the board.
There certainly is a case to experiment by privatizing one or two mid-sized public sector banks.
Reducing the government stake below 50% for a couple of others.
While working on governance reforms for the rest.
We will then actually then have some evidence in future.

Government’s privatisation plan is being worked out when the banks may face rising bad loans later this financial year because of the fallout from the coronavirus crisis.
But the divestment plans may not happen in this financial year due to unfavourable market conditions