Bank Of India, 3 Other PSBs Shortlisted For Privatisation

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What has happened?

India’s government has shortlisted four mid-sized state-run banks for privatisation, under a new push to sell state assets and shore up government revenues, three government sources said.
Privatisation of the banking sector, which is dominated by state-run behemoths with hundreds of thousands of employees, is politically risky because it could put jobs at risk,
But Prime Minister Narendra Modi’s administration aims to make a start with second-tier banks.

Two of those banks will be selected for sale in the 2021/2022 financial year which begins in April, the officials said.
The shortlist has not previously been reported.
The government is considering mid-sized to small banks for its first round of privatisation to test the waters.
In the coming years it could also look at some of the country’s bigger banks, the officials said.

The government, however, will continue to hold a majority stake in India’s largest lender State Bank of India,
Which is seen as a ‘strategic bank’ for implementing initiatives such as expanding rural credit.
India’s deepest economic contraction on record caused by the pandemic is driving the push for bolder reforms, economists say.
Modi’s office initially wanted four banks to be put up for sale in the coming fiscal year,
But officials have advised caution fearing resistance from unions representing the employees.

Bank of India has a workforce of about 50,000 & Central Bank of India has 33,000 staff,
While Indian Overseas Bank employs 26,000 & Bank of Maharashtra has about 13,000 employees.
Bank of Maharashtra’s smaller workforce could make it easier to privatise & therefore potentially one of the first to be sold.

The actual privatisation process may take 5-6 months to start.
“Factors like number of employees, pressure of the trade unions and political repercussions would impact a final decision.“
The privatisation of a particular bank could be subject to change at the last moment due to these factors.
The government hopes that the Reserve Bank of India, the country’s banking regulator,
Will soon ease lending restrictions on Indian Overseas Bank after an improvement in the lender’s finances that could help its sale.

Some economists said there could be a few takers for weak and small banks – saddled with bad assets.
But that Modi should consider the sale of bigger banks like Punjab National Bank or Bank of Baroda.
The sale of small banks was unlikely to help the government raise much in the way of resources for budget spending.