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Finance minister Nirmala Sitharaman on Sunday announced 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.

In her final and fifth tranche of announcement of the stimulus and reform measures, Sitharaman said India needs a coherent policy on PSEs, wherein they will play important roles in defined areas.

She said the Centre will soon announce the details of the policy, listing strategic sectors that require the presence of PSEs in public interest.

“In strategic sectors, at least one enterprise will remain in the public sector but private sector will also be allowed. In other sectors, PSEs will be privatized," she added. The timing of privatization of PSUs will be based on feasibility. To minimize wasteful administrative costs, number of enterprises in strategic sectors will ordinarily be only one to four, she said. “Others will be privatized or merged or brought under holding companies."

This opens the possibility of further consolidation of the 12 public sector banks. The Centre had started the first round of consolidation after approving the merger of Vijaya and Dena Bank with Bank of Baroda in 2018, which was followed by the merger of 10 banks into four starting 1 April.

A senior official at a state-owned bank said there are five banks—Bank of Maharashtra, Bank of India, UCO Bank, Indian Overseas Bank and Punjab and Sind Bank—that were not part of the consolidated plan. “Looks like the government is keen to continue with its consolidation plan in the banking sector, though there has been no official word on it. Lenders such as Bank of India are reasonably big and can absorb weaker banks."

Dipti Lavya Swain, corporate M&A lawyer and partner, HSA Advocates, said this marks the advent of a new disinvestment policy. “What will be strategic and what not will be a key decision that the government will have to take since there are many sectors where PSEs continue to be financially distressed."

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