Re-privatisation of PSU banks - Pros and Cons

Re-privatisation of PSU banks - Pros and Cons

Re-privatisation of PSU banks - Pros and Cons

Facts
  • The gross bad loans of government banks stood at Rs 6.15 trillion as of December 2016.
  • The private sector is the contributor of 97 per cent of bad loans.
  • The government is infusing Rs70,000 crore in state-owned banks over four years starting from financial year 2015-16 under the Indradhanush programme.
  • Out of this fund, Rs50,000 crore is the allocation for the first two years, with the balance split between financial years 2017-18 and 2018-19.
  • Last year ending March 31, 2016, public sector banks had earned operating profits of Rs 1,37,306 crore. But since the total provisions for bad loans and contingencies were Rs 1,55,297 crore, there was a net loss of Rs 17,991 crore.
RBI Deputy Governor Viral Acharya’s made a statement that banks need to be re-privatised in order to get back to form which it was once in and to retain the status that it needs to maintain. The statement has been condemned by many and accepted by some.

All India Bank Employees Association is absolutely against the idea and demanded that the statement should be withdrawn in the interest of public which the nationalised banks are meant to serve. Should the idea be accepted or dumped?

Advantages

1. Clearing bad loans

Government is scurrying to clear off bad loans that have accumulated over the years. It is a big burden on the government and to be clear most of these loans are a contribution of the private sector and hence clearing them should require the involvement of the private sector.

2. Reducing government burden

Reprivatisation will reduce the amount govt has to inject as part of bank recapitalization and we know that the amount is the hard earned money of the tax payers which needs to be put to better use than to deal with the loss due to bad debts taken and forgotten by the likes of Kingfisher tycoon.

3. Fiscal discipline

The government cannot lose the hard earned fiscal discipline since once it is gone all foreign investments that have formed a large revenue system for the country will be gone too. To keep foreign investments coming, it is absolutely important that the fiscal discipline be maintained.

4. It was successful before

The earlier instances of bank privatisation were successful and let’s accept it – banks are better run by private sector (except a few bad examples) rather than the government and hence it is about time the government gets out of the fiasco and lets the private sector do its part.

Disadvantages

1. Making the poor poorer

And vice versa! Privatisation of small PSU banks will be bad news for the poor who have small loans and debts to pay. Private Banks would be ruthless to them and they will have no escape if the bank decides not to give them any loans in the future. We all know that private banks do not give off loans as easily as public banks do. That is one of the reasons why public banks have more bad loans.

2. The responsibility of the government

It is the responsibility of the government to help people and public sector banks in times of trouble. With some much loans pending, the government is looking for ways to wash its hands out of the mess
which is clearly not very responsible decision.

Re-privatisation could be a cruel truth for PSU banks but it is the need of the hour as suggested by deputy governor. There are more advantages to it and hence it should be considered.
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