India, China lead spate in bank privatization | Mint
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Business News/ Industry / Banking/  India, China lead spate in bank privatization

India, China lead spate in bank privatization

A new study records 17 bank privatization deals in India per year during 2011–2017, compared to just two a year between 1995 and 2010

Photo: MintPremium
Photo: Mint

Selling stake in state-owned banks has become common for the Indian government in the last few years. But barring China, the same is not true for other middle-income countries, says a World Bank working paper that has studied the phenomenon.

The study, by Ata Can Bertay and others, looks at 475 privatization events involving commercial banks across 70 countries during 1995–2017. The number of such events rose from 11 a year in the late 1990s to 27 after the 2008 financial crisis, the study finds.

However, the phenomenon remained stable in high-income countries and was uncommon in low-income ones. China and India were the “driving force" behind the rise of bank privatization in the 21st century, the paper says.

Proceeds from privatisation went up from an average $6.8 billion a year to $26.8 billion in the period. The Indian government alone earned $11.5 billion through the sale of stake in 19 public sector banks in 2017—equivalent to 2.2% of annual revenue, the study finds.

In India, the study records two transactions worth $600 million a year, between 1995 and 2010, but this rose to 17 a year, worth $5.8 billion, during 2011–2017. China moved from no transaction during 1995-1999 to four deals a year after the financial crisis.

However, while the number of bank privatization events has risen globally, the average stake sold per deal has declined to 12% from 21% before the financial crisis.

The study notes that banks chosen to be privatised were consistent underperformers and that 92% of all transactions were done through sale in the domestic capital market. Banks increased their workforce after the privatization events, and extended higher credit, the paper finds. There was no significant jump in non-performing loans for such banks.

Also read: Recent Trends in Bank Privatization

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Published: 19 Aug 2020, 09:22 AM IST
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