Why Arvind Panagariya bats for privatisation for PSU banks

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Published: April 22, 2019 3:22:16 PM

In view of rising non-performing assets (NPAs), India must look at the prospect of privatising public sector banks (PSBs), the former Niti Aayog Vice Chairman Arvind Panagariya said.

SBI new interest rate on savings deposit above 1 lakh rupee from 1st may 2019The veteran economist emphasised that the government can promote social goals without having ownership in the banks

In view of rising non-performing assets (NPAs), India must look at the prospect of privatising public sector banks (PSBs), the former Niti Aayog Vice Chairman Arvind Panagariya said.

There have been adverse results of public sector-ownership such as accumulation of NPAs in state-run banks, over a period of time, which has not been the case with private banks or foreign banks, Arvind Panagariya, who is currently the Director at the Raj Center on Indian Economic Policies at Columbia University, told news agency PTI.

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While advocating for the privatisation of PSU banks, the eminent economist also raised the issue of dual regulation of PSU banks by the government and the central bank. He also flagged the issue of RBI’s different regulatory framework for private and public sector banks.

Notably, last year, the former RBI governor Urijit Patel had also pointed out RBI’s less power over PSU banks than the private banks because of some clauses in the Banking Regulation Act which restrict the central bank from removing the top management of state-run banks and forcing mergers between these public sector banks.

The veteran economist emphasised that the government can promote social goals without having ownership in the banks. However, he also said that if the government feels it must have control then it can keep India’s largest state-run State Bank of India (SBI) in the public sector.

Currently, there are 21 public sector banks in India. The PSU banks came in the public eye after Nirav Modi and Vijay Mallya made headlines over the alleged banking scam. The last two fiscal years saw two major mergers in the PSU banks of SBI with its five associates and the Bharatiya Mahila Bank and Bank of Baroda’s merger with Dena and Vijaya Bank. In a recent report, the RBI also suggested further consolidation in the banking sector as the large banks are more labour cost-efficient.

 

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