Industry body FICCI has called for privatisation of public sector banks (PSBs), saying that the recapitalisation efforts by the government have had little effect on improving their health.
‘Pressure on finances’
“Given the continuous pressure on the government finances on account of the weak performance of the banks, the government should consider privatisation of PSBs,” FICCI president Rashesh Shah said in a statement. This would reduce the drain on the exchequer and the money saved could be used for developmental schemes and programmes of the government.” “A dynamic banking sector is the need of the hour and we should examine if there is at all a case for public sector domination in the banking sector,” he added. “FICCI firmly believes that the recapitalisation of PSBs alone is not a permanent solution and will not be effective unless the inherent issues related to governance, productivity, risk management, talent, customer service, etc. are resolved.”
Mr. Shah’s statement follows the government announcement last October of a ₹2.11 lakh crore recapitalisation plan for PSBs, of which ₹88,000 crore is scheduled for this financial year. Of this, ₹80,000 crore is to come through bonds and a little more than ₹8,000 crore through budgetary support this financial year.
In an interview to The Hindu , Chief Economic Adviser Arvind Subramanian had also stressed the need to shrink unproductive public sector banks and move forward with increasing private sector participation in the banking sector.
“If you want this cycle not to repeat itself again, some of the unviable banks have to be credibly shrunk and [former] Governor of Reserve Bank Y.V. Reddy had good ideas on that,” Mr. Subramanian had said. “The second thing is that we have to have more private sector majority participation.”
“The public-sector banks, which constitute almost 70% of the Indian banking system, are saddled with burgeoning stressed assets,” Mr. Shah said. “The government has already injected over ₹2.6 lakh crore in the public-sector banks through recapitalisation in the last eleven years, which has had limited impact in improving the health of public sector banks thus far.”
