No merger but PSB privatization still on cards

  • Media reports suggest the government is mulling a different strategy to strengthen the banking sector, which includes merging public sector banks

Rhik Kundu, Subhash Narayan
First Published19 May 2024
The government is keen to complete the much-delayed strategic divestment process for IDBI bank during FY25.
The government is keen to complete the much-delayed strategic divestment process for IDBI bank during FY25.(REUTERS)

New Delhi: The Centre doesn't have any plans to merge public sector banks (PSBs) in FY25, though it will not ditch plans to privatize PSBs during the fiscal, two people aware of the matter said.

"There have been no proposals, at present, to merge any more public sector banks (PSBs)," said the first person mentioned above, speaking on the condition of anonymity.

"We are not aware of any discussions on merging public sector banks or giving up on privatisation," the person added.

Last week, Informist Media reported that the government was contemplating a different strategy to strengthen the banking sector, with the finance ministry looking to merge certain state-owned banks if the incumbent Bharatiya Janta Party (BJP) retains power.

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India currently has 12 PSBs, down from as many as 27 in 2017, after several mergers were carried out to strengthen some of the banks.

Before the mergers, the a bulk of which were carried out in 2019-2020, PSBs were reeling under a mountain of sour loans, prompting the government to initiate measures to restore their financial health. These included capital infusion and merger of banks, which enlarged their capital base and reduced their operational and administrative expenditure.

Keen on IDBI divestment 

Under the current government, The Oriental Bank of Commerce (OBC) and the United Bank of India were merged with Punjab National Bank (PNB) in 2020, making PNB the country's second-largest bank after the State Bank of India (SBI).

Other mergers included Dena Bank and Vijaya Bank with the Bank of Baroda; Allahabad Bank with Indian Bank; Andhra Bank and Corporation Bank with Union Bank of India; and Syndicate Bank with Canara Bank.

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The government is keen to complete the much-delayed strategic divestment process for IDBI bank during FY25, said the second person mentioned above, who spoke under the condition of anonymity.

The government, which owns over 45% in IDBI Bank, and insurer Life Insurance Corp of India (LIC), which has a 49.24% shareholding, have jointly decided to sell a 60.7% stake in the lender, which is categorized as a private bank.

Back to drawing table

Last October, Mint reported that the government is planning to revisit its bank privatization plan and redraw the list of public rector banks (PSBs) to be privatized, in a changed scenario where banks have turned profitable and substantially cut their bad loans.

To this extent, it is considering a new panel with representatives from the finance ministry, NITI Aayog and RBI to study PSBs afresh and draw a fresh list or suitable candidate for privatization, the report added. 

"Most of the PSB mergers, which were required, have already been carried out. In terms of privatisation, the strategic divestment of the IDBI is something that is being worked on," the second person, mentioned above, said. 

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“There have been no new proposals to privatise PSBs yet, but this could change in future,” the person added.  

Finance minister Nirmala Sitharaman, while presenting Budget 2021-22, had said that the government intended to privatize two public sector banks and one general insurance firm, other than strategic stake sale in IDBI Bank.

A finance ministry spokesperson didn't respond to emailed queries.

In new government's hands

The Centre hopes to complete a strategic divestment of its stake in the IDBI Bank during FY25, after much delay due to various reasons, including a delay in the vetting process of the interested bidders.

The government’s earlier plan involved issuing financial bids for IDBI Bank by December 2023 and completing the transaction in the fourth quarter of the fiscal 2024 (FY2024).

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Prem Watsa-backed CSB Bank, Kotak Mahindra Bank and Emirates NBD are among those who have submitted initial bids for the government's majority stake in IDBI Bank.

The divestment will be taken forward by the new central government, which will come to power in June, following the vetting of the bidders by the Reserve Bank of India (RBI).

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