Last week, a WhatsApp forward from a neighbor left Ankita Roy, 54, a Kolkata-based housewife, in a state of panic. The message said that when a public sector bank is privatized, the government guarantee under which it previously operated will be removed. Roy was worried because the majority of her bank savings and fixed deposits are split between two major public sector banks (PSBs).
Such messages and forwards, spreading misinformation about the possible after-effects of privatization of banks, have been doing the rounds through various social media platforms recently. But such fears are mostly unfounded.
Though there have been reports about possible privatization of banks in India, there have been no concrete announcements, apart from an indication from finance minister Nirmala Sitharaman in May.
The minister, while announcing a stimulus package to counter the covid-19 impact in M, said that the government intended to undertake a new public sector enterprise (PSE) policy under which there will be at least one state-run company in strategic sectors, while PSEs in non-strategic sectors will be privatized. This opens up public sector banks in India to privatization.
Ever since, there has been a flurry of misleading messages. “This will create panic in depositors and there will be a bulk withdrawal of deposited money. But banks won't have repayment capacity and they will collapse," the message that Roy received stated. It also predicted the more dire consequence of the entire country’s financial system collapsing. She forwarded the message to her family and friends, fearing there may be bulk withdrawals if such a thing happens.
According to Raj Khosla, founder and managing director, MyMoneyMantra, the ripple of panic that passed through Roy’s circle of family and friends is understandable but unfounded. “In a privatization scenario, the government will always retain a portion of the bank’s stake and as such will remain a shareholder. Whenever bulk withdrawal of deposits takes place, the government as a shareholder will step in to adequately capitalize the bank," he said.
Khosla added that even in the case of Yes Bank Ltd, where the government had zero shareholding, State Bank of India still came forward to take control and protect the interests of depositors, and did not let the bank fail.
Sitharaman had stated the need for opening up to the private sector and having a coherent policy in place, and this could ultimately work out to be a better deal for PSB customers. “Customers of privatized PSBs may get much better services and products, especially in rural areas," said Khosla.
If you are an account holder or a depositor in a PSB, rest assured that privatization will not wipe out your savings or lead to the collapse of the bank. Keep in mind that even though we have seen cooperative banks go under, no scheduled commercial bank in India has collapsed. On the contrary, in the long run, you might have access to better services if your PSB does become privatized.