India is privatising its banking sector. India’s Finance Minister, Nirmala Sitaraman, announced the Government’s plan to divest its stake in two public sector banks (PSBs), apart from one general insurance company. Furthermore, the Government will also complete the divestment of Industrial Development Bank of India (IDBI) in the next fiscal.
Though the Finance Minister did not name the banks likely to be privatised in her speech, analysts predict that the Bank of Baroda (BoB) and Punjab National Bank (PNB) are likely to be possible candidates.
Five decades after Prime Minister Indira Gandhi Nationalised fourteen banks, in 1969, to establish complete state control on India’s financial system, the Modi government’s decision to privatise India’s public sector banks is a welcome reform. It is a bold, much needed move that pivots towards market reforms.
For decades, India’s public sector banks have been stellar examples of operational inefficiency. Susceptible to political pressure (derisively called ‘Phone Banking’), prone to bribery and fraud, their reputation is tarnished by scandals and disproportionately large non-performing assets.
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