Former NITI Aayog vice chairman Arvind Panagariya has made a strong case for privatisation of public sector banks with the exception of SBI.
Mainly, the predominance of scandals and NPAs in PSBs highlight the need for privatisation of PSBs. Efficiency and productivity to demand that the government relinquish its control of the large number of banks whose market valuation has dwindled despite the fact that they hold the bulk of the deposits.
Also, there is a continuous pressure on the government finances on account of the weak performance of the banks. Privatisation would reduce the drain on the exchequer and the money saved could be used for developmental schemes and programmes of the government.
Benefits of private banks:
Private banks will bring innovations in products, technology and customer servicing and a market-based discipline to lending. Private banks, knowing that they cannot count on government’s protection, are unlikely to engage in the sort of risky lending that characterised public bank lending. Also, they will not be subject to the same pressure from politicians and others in government that has destroyed the public sector banks.
The public-sector banks, which constitute almost 70% of the Indian banking system, are saddled with burgeoning stressed assets. The government has already injected over ₹2.6 lakh crore in the public-sector banks through recapitalisation in the last eleven years, which has had limited impact in improving the health of public sector banks thus far.
Therefore, recapitalization of PSBs alone is not a permanent solution and will not be effective unless the inherent issues related to governance, productivity, risk management, talent, customer service, etc. are resolved. The government should shrink unproductive public sector banks and move forward with increasing private sector participation in the banking sector.