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CEA moots privatisation of public sector banks

The immediate priority is to strengthen the performance of the banks, merge the small banks with the larger banks to build scale and then prepare them for privatisation.

MMA has several firsts to its credit in conceiving and conducting a large number of programmes on management practices. The current year witnesses a quantum jump in this activity. There is Nithya Kalyanam(s)! One is bombarded daily with info on four to five programmes!
A major landmark is the construction of a modern building at the heart of the city in Thousand Lights well-equipped with a large auditorium, library and hi-tech facilities.
MMA presented in the recent annual convention, Chief Economic Adviser, Arvind Subramanian. The CEA, known for his articulation, presented a strong case for opening up the public sector banks for majority private participation.
Indira Gandhi’s nationalisation helped in the massive expansion of the reach and of deposits and lending. But interference from the government, lack of effective regulation and a bureaucratic culture affected their performance. Over the last decade PSBs have suffered serious deterioration in their operations. Profligate lending to infrastructure companies had resulted in mounting non-performing assets. The government has been baling the PSBs out by frequent capitalisation through budgetary support. This is not sustainable.
The CEA’s suggestion is rational, but the timing is not opportune. Bank shares have shed much of their value; offering participation to the public now may not evoke interest in investments. The clean-up of the balance sheets initiated by Raghuram Rajan and the bold plan to experiment positioning proven professionals from outside at the top have been a help.
The immediate priority is to strengthen the performance of the banks, merge the small banks with the larger banks to build scale and then prepare them for privatisation. There is a disposition on the part of the government to build size. It started with merging State Bank with its subsidiaries followed by the merger of HPCL and ONGC and now the proposal to merge the three general insurance companies.
As a continuation of this policy one can expect merger of several banks to build size and then allow private participation. With that the burden of frequent re-capitalisation will cease. But with elections round the corner, with no consensus on such major issues among political parties and strong trade unions there would be resistance to the move towards privatisation. – SV

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