Is it right time for the privatisation or consolidation of public sector banks?

Banking & Investment

Current market share of public sector banks is 70% which is reducing very rapidly i.e. approximately 4% a year. After 5 year, Estimated the market share of public and private sector bank will be in the ratio of 50:50.

Infosys chairman Nandan Nilekani said that market share of public sector bank may reduce to something like 10% in a period of about 10 years.At present public sector banks dominate the market share at 70% and it is good time to privatise public sector banks before their value is eroded by creeping privatisation. This has happened with telecom sector where private players are dominating the market and BSNL is a small player.This has also happened in Airlines and now government has decided to privatise Air India.

Rapid increase in the market share of private sector bank is driven by use of digital technology, Aadhaar based electronic KYC etc. Aadhaar is not just ID proof but it is future of financial transactions.

Currently there are 21 public sector banks in country, Government is planning to set up a holding company and all public sector banks will work as a subsidiary to it. But Government wants to stabilize public sector banks my resolving their bad loans before working on the plan of consolidation. In October 2017, Government announced bank recapitalization plan for introducing 2.1 lakh crore capital in 20 public sector banks out of which RS. 88139 crore were announced to be introduced in current fiscal. IDBI bank is the biggest beneficiary and will get RS. 10610 crore under Bank recapitalization plan.

Under Sebi norms, an entity whose shareholding in a listed company goes beyond a particular threshold, then it has to make an open offer. But Sebi exempted the central government from making an open offer in six PSBs.

Recapitalization will increase percentage of government holding in public sector banks. Hence it seems that government is not in the mood to privatise public sector banks in current situation.
As per news of Economic Times, public sector banks are said to have checked all outstanding letter of undertaking and not found any other fraudulent issued LOU except which was issued earlier. As per instructions of RBI, 30th April is the deadline for integrating SWIFT system with core banking system.