Bank privatization is no more at the forefront of the government's agenda in Budget 2023 (story link), sources from the Ministry of Finance revealed recently. However, in the last year, there has been a lot of talk around privatization, with even bank unions vehemently opposing the idea.  

The Ministry of Finance held a pre-budget meeting with the heads of the public banks on January 19 and privatization was not among the major points of discussion. (link) 

Zee Business team spoke to various experts from the banking sector, economists, and bank union leaders to understand why the government may have put privatization on the backburner.
 
Here are the five major reasons that influenced the government not to put any new bank privatization plan and disinvestment target in this fiscal:

1. General Election in 2024

 

This Budget is the last major Budget before the Election in 2024. There has already been a lot of negative sentiment attached with the proposal of bank privatization. “With general elections due in just over a year, it may not be politically correct to hand over the so-called family silver to private investors,” said Naresh Malhotra, a former State Bank of India (SBI) official, who presently works as a consultant in the banking industry.

 

2. Disinvestment target not met

 

During the previous budget, Finance Minister Nirmala Sitharaman revealed the disinvestment target with regards to the sale of IDBI shares. The government had set a divestment target of Rs 65,000 crore for FY23, but so far, the government has received only Rs 32,000 crore through divestment. Similarly, the disinvestment targets for Life Insurance Corporation (LIC) and Bharat Petroleum Corporation Limited (BPCL) have not been achieved yet.

“The market initially expected Rs 1 trillion from LIC disinvestment for FY23. However, the volatility in the global market led to mop-up through LIC of only about Rs 21 thousand crore. The BPCL disinvestment didn't go through this fiscal as well. Hence, the actual disinvestment in FY 23 may be lower than the target by about 20 thousand crores,” added Dr Sudarshan Bhattacharjee, principal economist at Yubi (formerly known as CredAvenue).

 

3. Boost in PSBs’ performance

 

Experts pointed out that the poor performance of public banks was one of the major reasons why the government mulled privatisation in the first place.  The government had to bear the burden of the losses incurred by the banks. However, the PSBs have performed considerably well in the last couple of quarters. “The public banks have witnessed considerable growth in profits. The share price of the PSBs has also spiked after the results of the last two quarters. Thus, the government has started gaining profit too from the public banks,” a senior banker from Bank of Baroda, requesting anonymity, said.  

 

4. Better tax collection in this fiscal

 

Privatization was one of the ways for the government to cope-up with the loss and earn better revenue. “Earlier, divestment was treated as a resource to shore up plan expenditure. But with buoyancy in direct as well as indirect tax collections, that rationale has acquired secondary importance,” Malhotra opined.

 

5. Not the right time 

 

Bankers and bank union leaders are of the opinion that the government has realized that they need to wait for the right time to get the maximum benefit out of privatization.  “The government has already made major announcements in terms of bank privatization in the last budget. Now, they are just waiting for the opportune time, as the market is not currently in favor,” C H Venkatachalam, General Secretary, of the All India Bank Employees'' Association (AIBEA), said.

Senior bankers also pointed out that the response from the market so far has been lukewarm at best. Sell-off for two other banks was scheduled, but expected pricing is not yet available.

 

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