PSB privatisation: Banks need deeper reforms, recapitalisation no panacea, says NK Singh

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Published: July 28, 2020 6:15 AM

Growth in business and rise in bad loans in the past decade has forced the Centre to infuse over Rs 3 lakh crore in the past one decade.

Bank recapitalisation is not a panacea for the serious ills which afflict the banking system, Singh said.

The issues of public ownership of banks need to be dispassionately debated and policymakers need to look at this with an open mind, 15th Finance Commission chairman NK Singh said on Monday, referring to debates over a reported move to privatise some of the PSBs.

Bank recapitalisation is not a panacea for the serious ills which afflict the banking system, Singh said. Post 1991, one sector which has remained comparatively closed has been the banking and insurance sector, which requires deeper reforms, he said.

The 15th FC is currently consulting the department of financial services and the Reserve Bank of India on the recpaitalisation requirement of public sector banks, during its award period of five years through FY26, Commission’s chairman NK Singh said on Monday.

“If the government is to continue to have ownership, we need far more significant and decisive bank recapitalisation plan….a higher public outreach will be needed to keep the public sector banks properly and adequately recapitalised,” Singh said in video address to All India Management Association.

Growth in business and rise in bad loans in the past decade has forced the Centre to infuse over Rs 3 lakh crore in the past one decade. The Centre’s proposed new policy to have not more than four public sector undertakings (PSUs) in each ‘strategic sector’ will likely apply to the banking space too, department of investment and public asset management (DIPAM) secretary Tuhin Kanta Pandey has said recently. This will essentially mean that the number of public sector banks (PSBs) could be brought down to four from 12 now, via privatisation or consolidation.

The government had in August last year announced that Oriental Bank of Commerce and United Bank will be merged into Punjab National Bank (PNB) to create the country’s largest state-run bank after SBI, with a total business of close to Rs 18 lakh crore.

Similarly, Syndicate Bank is to be amalgamated with Canara Bank, and Andhra Bank and Corporation Bank will be merged into Union Bank. Also, Allahabad Bank will be amalgamated with Indian Bank. The consolidation exercise was aimed at creating only a few (6-7) but strong banks to support the rising credit appetite of the economy, help reverse a slide in economic growth and cut costs through greater synergy. Each of the amalgamated entity, created in April, has a business of over Rs 8 lakh crore.

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