The deteriorating health of public sector banks has prompted the Reserve Bank of India (RBI) to suggest radical steps to tackle the issue including considering mergers and possibly even the privatisation of some of the lenders which had been nationalised by previous governments.
Commenting that the government should not allocate capital poorly, RBI deuputy governor Viral Acharya mooted options for the troubled sector including raising private capital and selling non-core assets.
According to the central banker, divestment is also one option that needs to be considered.
“Undertaking these measures would improve overall banking sector health, creating an opportune time for the government to divest some of its ownership of the restructured banks, as it has over time in many other sectors of the economy,” he said at a seminar organised by Federation of Indian Chambers of Commerce and Industry (FICCI).
“Perhaps re-privatising some of the nationalised banks is an idea whose time has come?” he said.
These steps would pare the overall amount the Centre needed to inject as bank capital and help preserve its hard-earned fiscal discipline, he opined. Fiscal discipline along with a stable inflation outlook and the diverse nature of the country’s growth engine had made India the darling of foreign investors, he said.
“We should grapple this macroeconomic stability to our shores with hoops of steel,” he said.
