Privatization of public sector banks in India could provide benefits but also risks. It may increase efficiency and reduce the financial burden on the government, but it could also reduce services to rural areas and priority sectors. Two public sector banks are proposed for privatization to increase capital and implement best practices, but the final decision has not been made. Both public and private banking structures are important for the economy, so policies aim to improve governance and reduce political interference for public sector banks while allowing all to thrive.

1. Impact of Privatization of Public Sector Banks
in India
AIMS 20 PAPER ID : A2278 - BANKING
Presentation by:
Prof.(Dr.) Narinder Kumar Bhasin, Amity University , Noida
Dr. Sunil Kadyan , Amity University, Noida
Dr. Richa Bhatia , The Bhopal School of Social Sciences

2. 2

3. Introduction
While presenting Budget, 2021-22 Finance Minister Ms. Nirmala Sitharaman had
announced the privatization of Public Sector Banks (PSBs) and approval of policy as part
of its strategic disinvestment drive.
The proposed Banking law Amendment Bill 2021 to bring down the minimum
Government holding in the PSBs to 26% from 51% which was to be introduced in the last
winter session 2021 of parliament was delayed.
While responding to a question on privatization of two PSBs, Finance Minister
responded in written reply in Rajya Sabha that the objective of the policy includes
enablement of growth of public sector banks though advance technology, infusion of
capital and best practices.
The Union Budget has announced the privatization of one general insurance company
and two public sector banks (in addition to IDBI).

4. Introduction
Bare minimum presence of Government in strategic sale / disinvestment policy for four
strategic sectors – including insurance, banking and financial services was the main
objective of this announcement.
With Effect from 1st April 2020 after the merger only 12 PSU`s Bank exist and out of
these – 6 PSU`s Bank – Indian Overseas Bank, Punjab and Sindh Bank, UCO Bank, Bank of
India, Central Bank of India and Bank of Maharashtra are independent.
However, the final decision on the banks to be privatized is yet to be taken. Many
banks were under private ownership until their nationalization in 1969 and their
privatization proposal to privatise these banks marks a strategic shift back from where
it started.
State owned banks continues to be relevant for the last mile connectivity and have the
public confidence and trust on them. T

5. Background of the Study

6. Huge market size.
• PublicsectorbankshavetotaldepositofRs84,86,215crore.
• PrivatesectorbankshavetotaldepositofRs37,70,013crore.
• FDIinpublicsectorbankingisallowedupto20%inIndia.
• FDIinprivatesectorbankingisallowedupto74%inIndia.
• PublicsectortotalassetsstandingatRs7,18,784crore.
• PrivatesectortotalassetsstandingatRs3,69,363crore.
TheIndianbankingsystemconsistsof12publicsectorbanks,22privatesectorbanks,46foreignbanks,56
regionalruralbanks,1485urbancooperativebanksand96,000ruralcooperativebanks.
6

7. • Public sector banks had 8 lakh employees in march 2018.
• Private sector banks had 4,20,000 employees in march 2018.
Asof2018publicsectorbanksaccountsfor62%oftotalbankingassetsand58%oftotalincome,
therestbyprivatesectorbanks.
Thegross-nonperformingassetsinIndianpublicsectorbanksarevaluedataroundRs
400000crorewhichre
presents90%oftotalNP
As.
• GreatfinancialinclusionthroughPSBs:
• PMJDY(PradhanMantriJ
andhanY
ojana).
• T
otalbeneficiaries-41.1
6crores,T
otalbalance-1,31,461crore
• Digitalization.
• UPIrecorded1.25billiontransactionsinMarch2020,valuedatRs2.06lakhcrore.
7

8. Indian Overseas
Bank
95.8%
8
I
94.4%
UCOBANK
92.4
BANK OF
MAHARASHTR
A
89.1
BANK OF
INDIA
GOVERNMENT
SHAREHOLDING
PERCENTAGE IN PSBs

9. 89.0 88.0
UNION
BANK INDIAN BANK
OF INDIA
9
85.5
PUNJAB
NATIONAL
BANK
83.0
PUNJAB AND
SINDH BANK
GOVERNMENT
SHAREHOLDING
PERCENTAGE IN PSBs

10. 78.5
10
CANARA BANK
78.5
CENTRAL
BANK OF
INDIA
71.6
BANK OF
BARODA
57.6
STATE BANK
OF INDIA
GOVERNMENT
SHAREHOLDING
PERCENTAGE IN PSBs

11. • The privatization of any institution is the process of transferring the
ownership from the government to the private hands.
• For a bank to be privatized government should own less than 50% of
shareholding or private parties should own more than 51% of stake.
Indiahas12NationalizedBankswhichactunderTheReserveBankofIndiaand
governedbyIndianGovernm
e
nt.
Indiawentforprivatizationinthehistoricreformsbudgetof1991,alsoknownasNEW
ECONOMICPOLICYorLPGpolicy
.
Governmentbankscanbeconvertedintoprivatebanksintwoways.
1. Bywithdrawalofthegovernmentfromownershipandmanagementofpublicsectorbanks.
2. Byoutrightsaleofpublicsectorbanks.
11

12. Reasons for Privatization

13. Privatization is considered to bring more efficiency and objectivity to
the bank.
Privatizationisimportant to economyandscale upa healthy competition in the
marketandreducestheprice.
Havingprivate ownershipof bankswill bring changesin structuring incentives
andaccountability.
Mainpurpose behindtheplan of privatization of PSBs istostall future bailouts byusing
taxpayersmoney.
Big economiceventslike demonetizationandbankmergersbrought alot ofuncertaintyandchanges
withthem.
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14. Benefits of privatization of bank
Increased efficiency.
Issue of dual control will be resolved.
Clearing bad loans
Risk mitigation
Strict against loans and frauds.
Help to reduce burden on GOI.
Encourages foreign investments.
14

15. Privatization of Banks will definitely have some positive and also some
adverse effect directly on society and indirectly on economy.
Privatizationofbankswillbehelpfulingettingabettercustomerservice.Itwillalsoeffectthe
economyandhelps in growth.
PrivatizationofIndian Bankswill removeirregularity andbringpunctualityandwill
led toaccountabilityin theservice.
Privatebanks’profitdriven motivescancreateeconomicgap.
Betterutilizationoftaxpayersmoney
.
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16. Issue of
Governance
PSBs as an
instrument for
social justice.
here
16
Peoples
trust in
Public sector
banks.
Government
scheme will
not work in
private sector
banks.
To what
extend govt
will be
influential
after
privatization.
Issues Related To Privatization of Banks

17. 01
Making
the poor
poorer
.
Adverse
effect on
employe
es.
02 03
opens the
way for
the
dominatio
n of the
economy
by foreign
capital.
Prone to
failure.
04
DARK SIDE OF PRIVATIZATION
OF PSBs
17

18. 02
Governance
For better governance
interference and
intervention from
government should be
minimal.
03
Structure
Instead of rapid re-
privatization of public
sector banks
government should
come up with better
governance structure.
01
NPAs
Quick resolution of
NPAs beyond NCLT
and IBC.
Recommendations
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19. CONCLUSION
19

20. 01
There are some
adverse aspects of
privatization of
banks but there are
some good aspects
of it.
02
Both kind of
banking structure
are essential for
the economy. They
both have some
deficiencies.
Let Both thrive with
Improved governance and
professionalism and
reduce political
interference for PSBs to
improve their overall
performance.
03
OPEN OPEN OPEN
20

21. THANK YOU
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