In its bid to privatise two state-run banks as unveiled by Finance Minister Nirmala Sitharaman in her Union Budget speech 2021, the Narendra Modi government may soon finalise plans to sell Centre's stake in Central Bank of India and Indian Overseas Bank (IOB). This is part of Government’s mega privatisation initiative which also include sale of other state-run companies like BPCL.  

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According to a report by IANS, NITI Aayog has submitted the names of two public sector banks (PSBs) and one public sector general insurer, which can be sold off under the government’s new privatisation policy, to the Core Group of Secretaries on Disinvestment.

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Citing sources, this report said that Department of Investment and Public Asset Management (DIPAM), and the Department of Financial Services (DFS) will examine the names suggested by NITI Aayog and finalise the list of possible candidates in the financial sector for privatisation this year.
 
The report further said that Bank of Maharashtra and Central Bank are top two candidates that have been favoured for privatisation, though the IOB also finding favour for the privatisation exercise that is likely to get completed by this year or possibly later.

The sources further revealed that United India Insurance could be a chosen candidate for privatisation among the three general insurers, given its relative better solvency ratio, this report said.  

The government had earlier indicated that banks under prompt corrective action (PCA) framework or weaker banks would be kept out of privatisation as it would be difficult to find buyers for them. This would have left three PSBs – Indian Overseas Bank, Central Bank and UCO Bank out of the government’s disinvestment plan, the IANS report said.  

But they could be brought out of PCA as there are visible signs of improvement in some of the key parameters such as profitability and asset quality (in net NPA terms as they have stepped up provisioning) in the last 3-4 quarters. This could allow them to be considered for privatisation, this report said.  

Besides, both Bank of Maharashtra and Central Bank are west focused banks where public sector bank presence is already stronger, allowing for more private sector entry.  

In this year’s budget, Finance Minister Nirmala Sitharaman announced that two state-run banks along with IDBI Bank would be privatised in FY22. She also said that one general insurance company would be sold off in the current fiscal.