Privatization of PSBs

Source: The post is based on the article “Privatization of PSBs” published in The Hindu on 26th August 2022.

What is the News?

An article titled ‘Privatization of Public Sector Banks: An Alternate Perspective’ has been published in the RBI bulletin.

What is the purpose of the article ‘Privatization of Public Sector Banks’?

The authors of the article have cautioned the government against a big bang approach of privatization of these banks as it would do more harm than good. 

Note: In her FY22 Budget speech, the Finance Minister announced plans to privatize two state-owned banks. 

Why the public sector banks should be not privatized?

Following are the arguments given against the privatization of the PSBs in the report:

Rural Penetration: Over 60% of PSB branches are in rural and semi-urban areas indicating the crucial role they play in financial inclusion.

Rural Lending: PSBs have been the leading lenders and meet over 60% of rural credit demand. While private banks have gradually made inroads in rural lending, the progress has been slow so far.

Sectoral Share: PSBs have allocated a larger share to agriculture and industry than private banks. The share of PSBs in agriculture lending has also increased over time.

Infrastructure Lending: PSBs account for a majority of infrastructure loans and their role has been especially crucial against the backdrop of the withering away of erstwhile development financial institutions

What should be the way forward according to the authors?

The authors advocate a gradual approach to privatization so that it doesn’t create a void in fulfilling the social objectives of financial inclusion and monetary transmission.