Mumbai: Big bang of privatization public sector banks can do more harm than good, an reserve Bank of India The article warns that the government has been asked to take a nuanced stand on the issue. whereas private sector banks (PVBs) are more efficient at maximizing profits, their public sector counterparts have outperformed their public sector counterparts in promoting financial inclusion, said the article in the latest RBI bulletin.
“Privatization is not a new concept, and its pros and cons are well known. From the traditional view that privatization is the panacea for all ills, economic thinking has come a long way to recognize that it is necessary to pursue a more subtle Approach is required,” it said.
The gradual approach of privatization adopted by the government can ensure that a void does not arise in meeting the social objective of financial inclusion and monetary transmission.
Citing various studies, it said, PSBs (public sector banks) have been instrumental in catalysing financial investment in low-carbon industries, thereby driving the green transition in countries such as Brazil, China, Germany, Japan and the European Union. has been promoted.
Evidence shows that public sector banks are not solely guided by profit maximization targets and have integrated desirable financial inclusion goals into their objective function unlike private sector banks.
“Our results also indicate the countercyclical role of PSB lending. In recent years, these banks have also gained greater market confidence. Despite criticism of weak balance sheets, the data shows that they have increased their risk due to the COVID-19 pandemic. Has withstood the shock well,” it said.
The recent mega merger of PSBs has resulted in consolidation of the sector, creating stronger and more robust and competitive banks.
In 2020, the government merged 10 nationalized banks into four major lenders, taking the number of public sector banks to 12. There were 27 state-run lenders in 2017.
United Bank of India and Oriental Bank of Commerce were merged into Punjab National Bank; Syndicate Bank was merged with Canara Bank; Allahabad Bank was merged with Indian Bank; And Andhra Bank and Corporation Bank were amalgamated with Union Bank of India.
In the first three-way merger, Dena Bank and Vijaya Bank were merged with Bank of Baroda in 2019.
Earlier, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with State Bank of India.
With regard to cleaning up of non-performing assets (NPAs), it said, setting up of National Asset Reconstruction Company Limited (NARCL) would help in clearing the old burden of bad loans from their balance sheets.
The recently constituted National Bank for Infrastructure and Development Financing (NABFID) will provide an alternative channel of infrastructure financing, thus reducing asset liability mismatch concerns of PSBs.
Overall, it said, these reforms are likely to help strengthen PSBs further.
Against the backdrop of these findings, a big bang approach to privatize these banks may do more harm than good. The government has already announced its intention to privatize the two banks.
The central bank said that the views expressed in the article are those of the author and not those of the Reserve Bank of India (RBI).
“Privatization is not a new concept, and its pros and cons are well known. From the traditional view that privatization is the panacea for all ills, economic thinking has come a long way to recognize that it is necessary to pursue a more subtle Approach is required,” it said.
The gradual approach of privatization adopted by the government can ensure that a void does not arise in meeting the social objective of financial inclusion and monetary transmission.
Citing various studies, it said, PSBs (public sector banks) have been instrumental in catalysing financial investment in low-carbon industries, thereby driving the green transition in countries such as Brazil, China, Germany, Japan and the European Union. has been promoted.
Evidence shows that public sector banks are not solely guided by profit maximization targets and have integrated desirable financial inclusion goals into their objective function unlike private sector banks.
“Our results also indicate the countercyclical role of PSB lending. In recent years, these banks have also gained greater market confidence. Despite criticism of weak balance sheets, the data shows that they have increased their risk due to the COVID-19 pandemic. Has withstood the shock well,” it said.
The recent mega merger of PSBs has resulted in consolidation of the sector, creating stronger and more robust and competitive banks.
In 2020, the government merged 10 nationalized banks into four major lenders, taking the number of public sector banks to 12. There were 27 state-run lenders in 2017.
United Bank of India and Oriental Bank of Commerce were merged into Punjab National Bank; Syndicate Bank was merged with Canara Bank; Allahabad Bank was merged with Indian Bank; And Andhra Bank and Corporation Bank were amalgamated with Union Bank of India.
In the first three-way merger, Dena Bank and Vijaya Bank were merged with Bank of Baroda in 2019.
Earlier, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with State Bank of India.
With regard to cleaning up of non-performing assets (NPAs), it said, setting up of National Asset Reconstruction Company Limited (NARCL) would help in clearing the old burden of bad loans from their balance sheets.
The recently constituted National Bank for Infrastructure and Development Financing (NABFID) will provide an alternative channel of infrastructure financing, thus reducing asset liability mismatch concerns of PSBs.
Overall, it said, these reforms are likely to help strengthen PSBs further.
Against the backdrop of these findings, a big bang approach to privatize these banks may do more harm than good. The government has already announced its intention to privatize the two banks.
The central bank said that the views expressed in the article are those of the author and not those of the Reserve Bank of India (RBI).