(Image source from: livemint.com)

The first part of the privatization would be to sell majority stakes in six state owned banks.

Indian government is looking to reduce number of state owned banks from 12 to 5 as per a report. This is going to be done due to the overhaul of the banking industry.

The first part of this plan would be to sell the shares of banks like Central Bank of India, Bank of India, Indian overseas bank, Punjab National bank etc for an effective privatization.

A senior government official said that the plan is to have 5 or 6 state owned banks instead of 12. This process would be laid out in a new privatization proposal which is being laid out by the government and this proposal would be put before the cabinet.

The government is planning to privatize as a part of its move to raise money by selling assets in non-core companies due to lack of availability of funds which has been caused due to the COVID-19 pandemic.

Reserve Bank of India (RBI) and also many government authorities have said that India should not have more than 5 state-owned banks.

The government has already said that there would be no more mergers of the banks so it is considering selling stakes of its banks as the next option.

Last year, the government has merged 10 state-owned banks into four creating a handful of larger banks in the process.

Government’s privatization plan comes out at a time when banks may face rising bank loans later this year due to the pandemic and the crisis.

The divesting of stakes may not happen this year due to unfavorable market conditions caused by the COVID-19 pandemic.

Indian government expects that bad loans at the state owned banks could double after the crisis as the economy was brought to a standstill recently.

Indian banks already have Rs. 9.35 lakh crore of sourced loans which would be about 9.1 percent of their total assets at the time of September 2019.

For this reason, government is planning to pump in nearly $20 billion into its state owned banks. This could possibly only happen with privatization and that too by selling stakes to private players.

However, the finance ministry of Indian government refused to speak about its opinion on the privatization matter recently.

The government is likely to take a proper decision by the end of 2020 regarding the percentage of stakes to be sold to private players.

By Gayatri Yellayi