The government is planning to set the ball rolling on privatisation of two public sector banks (PSBs) and a general insurance company in 2021-22.
“Other than IDBI Bank, we propose to take up the privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22,” said Finance Minister Nirmala Sitharaman in her 2021-22 Union Budget speech.
The Minister said privatisation of the aforementioned entities would require legislative amendments and she proposes to introduce the amendments in this (Budget) Session itself.
IPO of LIC
In 2021-22, the government will also bring the initial public offer (IPO) of the Life Insurance Corporation of India (LIC). For this move, too, the government will bring the requisite amendments in this session itself.
Currently, there are 12 public sector banks (PSBs) and 4 public sector general insurance companies.
In her 2020-21 Union Budget speech, Sitharaman had proposed to sell the balance holding of the government in IDBI Bank to private, retail and institutional investors through the stock exchange. The government and LIC currently hold 45.48 per cent and 49.24 per cent stake, respectively, in IDBI Bank.
Rajkiran Rai G, Chairman, Indian Banks’ Association (IBA), said: “Recapitalisation of Public Sector Banks to the tune of ₹20,000 crore will help the banks to shore up the capital and provides additional room for lending.
“Proposals for the privatisation of two public sector banks and an insurance company are bold reform measures announced in the budget.”
A bold move
Banking expert Hari Hara Mishra observed that the announcement on privatisation of two PSBs is a bold move on financial reforms. It will enhance competitiveness in the banking sector and improve efficiency.
“This will reduce pressure on the government to fund growth capital for these banks. The timing of the move could not have been better as BSE Sensex is near all-time high,” said Mishra.
Banking, insurance and financial services are among the four areas considered strategic by the government. Per the policy features of the “Disinvestment/Strategic Disinvestment Policy”, in strategic sectors, there will be bare minimum presence of the public sector enterprises (PSEs). The remaining Central PSEs in the strategic sector will be privatised or merged or subsidiarized with other CPSEs or closed.
In non-strategic sectors, CPSEs will be privatised, otherwise shall be closed.
Capital infusion so far
Per the Budget document, ₹80,000 crore in 2017-18, ₹1,06,000 crore in 2018-19 and ₹65,443 crore in 2019-20 was infused for the recapitalisation of PSBs.
Further, a provision of ₹20,000 crore was made in 2020-21 for recapitalisation of PSBs.
In the FY 2020-21 so far, ₹5,500 crore has been infused by the government as fresh capital in PSBs through non-interest bearing special securities.
The government has also infused capital through issue of bonds in three other financial intermediaries – IDBI Bank (₹4,557 crore), EXIM Bank (₹5,050 crore) and IIFCL (₹5,297.60 crore).