IMPACT OF

PRIVATIZATION
ON INDIAN
BANKING
 SBI enjoys a monopoly of the government business.
 SBI was formed under the SBI Act in 1955. The
government hold around 93% of the equity, leaving
7% to private ownership. By this act the equity of RBI
cannot be diluted below 55%.
 This act was outdated and needs to be re-addressed.
However, efforts were initiated by SBI to privatize its
non – banking subsidiaries like SBI Caps, SBI Funds
Management etc, where SBI’s holding is about 85%
of the equity.
 Later Indian government announced its
decision to reduce its stakes in public
sector banks to 33%.

 Are the banks really sick? The answer is

No. Public sector banks are making profits.
Even the loss-making banks like UCO bank
have turned the corner in recent years.
Then why this outcry of privatization.
Why…… Need of
Privatization???
In early 80s, the Banking Sector in India was
dominated by the public sector banks which
were characterized by
 High Intermediation Costs
 Over-staffing and Over-branching
 Huge portfolio of Non performing Loans
 Poor Customer Services
 Undercapitalized
 Poorly Managed / Narrow Product Range
 Undue Interference in Lending, Loan Recovery
& Personnel
Cntd………..
The bad loans are those which could not be
repaid due to the vagaries of business cycle or
due to natural calamities etc. There is no point in
pursuing the recovery of such loans, as such
borrowers do not repay. Such debts are written
off record books and recorded as general
expenditure and banks need not publish these.
This clause has been exploited to the hilt by the
Indian industrial and business class to conceal
their loot of bank funds
Cntd……..
Many politicians and industrialists looted the
banks. These loans are not to be monitored by
the branch managers. What happens to these
loans, who repays them, and ultimately who
waives these payments
Cntd…….
 Hindustan Photo Films — Rs. 395 crore
 Mangalore Chemicals and Fertilisers - Rs. 165
crore
 JK Synthetics — Rs. 87 crore
 Harshad Mehta — Rs.812 crore
 Hyderabad Allwyn — Rs. 85 crore
 HMT — Rs. 77 crore
 Mission Statement of
Privatization

Privatization is envisaged to foster

competition, ensuring greater capital
investment, competitiveness and
modernisation, resulting in enhancement of
employment and provision of improved
quality of products and services to the
consumers and reduction in the fiscal
burden.
Rationale for Privatization
 Reduction in fiscal deficit
Fiscal deficit reached a high of 8.5 percent of GDP in 1987-
88. Loss making public sector enterprises were a burden .
 Increase in the efficiency levels
Efficiency levels of public sector enterprises were low.
Production costs of public enterprises were high as a result of
political interference.
 To foster competition
State owned units when sold to different parties would result
in healthy competition in different sectors of the economy.
 Broad basing of equity capital
Privatization would result in strengthening and
deepening of capital market when some
percentage of shares of public enterprises are
sold to the public through stock exchange.
 Releasing resources for physical and social
infrastructure
More funds available for development projects.
Privatization of loss making enterprises would
give govt. more fiscal space
 So the need was felt to put some control
over the activities of the Nationalize banks.
Privatization of banks was one such action.

 Although all political parties are committed

to privatization, somehow there is no
exhibition of pace. It is time to be taken in
by a revolution called "Privatization of
Ownership".
Private Sector Banks
 ICICI Bank is India's largest private sector bank. The bank
has a network of 1,308 branches and 3,950 ATMs as well as
robust Internet banking. The Bank is present in 19 countries,
including India. ICICI Bank offers a wide range of banking
products and financial services to corporate and retail
customers through a variety of delivery channels and through
its specialized subsidiaries and affiliates in the areas of
investment banking, life and non-life insurance, venture
capital and asset management.
Some other Private Sector Banks
 Bank of Punjab
 Bank of Rajasthan
 Catholic Syrian Bank
 Centurion Bank
 City Union Bank
 Dhanalakshmi Bank
 Development Credit Bank
 Federal Bank
 HDFC Bank
 ICICI Bank
 IDBI Bank
 IndusInd Bank
 ING Vysya Bank
 Jammu & Kashmir Bank
 Karnataka Bank
 Karur Vysya Bank
 Laxmi Vilas Bank
 South Indian Bank
 United Western Bank
 UTI Bank (merged with Axes
bank)
 BENEFITS OF
PRIVATIZATION
Privatization Benefits
 There was a great increase in the no. of bank
branches after privatization from 8262 to 45,898.

 Branches in rural/semi-urban sectors increases

from 2% to 40% after privatization.

 Credit to agriculture increases from Rs.162 crore

to Rs.4,46,496 crore.
Cntd……….
o More job opportunities raise after
privatization which leads to increase in staff
from 2,20,000 to 9,65,720.

 Because of credit misallocation, public sector

banks may be a bigger threat to stability than
private banks.
 Cntd…….
 Private sector bank loans growth is faster as compared to public
sector banks.

 There was a great increase in the efficiency of the private banks

as the control over bank employees increases.

 Private sector banks provide many additional services to its

customers.
Adverse Impacts of
privatization
on Indian Banking
 Adverse Impacts Continued
 Interest rate is more in private sector banks as
comparative to the public sector banks.
 private banks are responsible for this
recession in the world & also in india.
 Fact is this:-
 Private banks give loans to the real
estate sector and many other
similar sectors with the eyes closed
not taking even some proper
securities by these companies.
Fact Continued
 And these companies put this money in the stock exchange and when the rates of this
wealth go down, and they could not return money the banks. So banks could not recover
their money which is gives as a loan and bear a loss in terms of business of the bank,
which effect the market very badly. Their procedures and systems are also not so good.
 Cntd……..

 There is less job security in case of private banks.

 Interference and manipulation by the politician and

industrialist is in full swing. In some cases, bank
loans were used to garner votes.

 Previously the public money was safeguard through

Deposit Insurance corporation but now this
corporation is abolished.
Cntd……..

 Sincenow in the private banks government has

less control over the bank activities , Private
sector use private recovering agencies to
recover bad loans.

 Theseagencies uses wrong means and force to

recover loans from people .

 Some people even commit suicide under the

pressure of the recovery agents.
 The employees of Private sector banks are
not pretty satisfied with the policies of the
private banks. As the working hours are
more and the salaries are less. That’s why
more than 800,000 PSU bank employees
recently protest against privatization.
 Conclusion
 There is nothing bad with the public sector banks, the
difference is in the policies. Because of loopholes in
the policies people uses banks for their personal
cause. Private sector banks boost the Indian economy
as their efficiency is much more than the Public
sector banks. But there is still a long road for
privatization. Private banks are still have to cover
rural sector which contribute large in the growth of
India.