PRIVITIZATION OF BANKS

INTRODUCTION
Privatization is transfer of ownership as well as the control over assets from Public sector to
Private sector. It involves greater influence in market forces, greater competition and high
involvement in government activities. In Indian Banking system, the most of the banking
aspects are characterized by the coexistence of private and public ownership groups. There
were 27 Public sector banks, 23 Private sector banks and 23 foreign banks operating in India
in the year 1990-91. Banking industry in India has always moved around the deposit and
credit functions. Their main role is to assist the overall economic growth where majority of
shares being controlled by the government of India. But when the liberalization takes place,
the banking industry undergone tremendous change in the last 5years. The RBI introduced a
new norms to adopt new practices and to make banks more accountable followed worldwide.

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.

PROS OF PRIVITIZATION

 Better Work Ethics and Lower level of corruption in the private Sector.
 It will reduce the amount government 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.
 It will help reduce the burden on the government to recover bad loans and reduce
NPA’s
 It will help maintain the fiscal discipline.
 A planned culture of motivation, communication, self-development, innovation,
creativity &also various personal development by conducting various training
programs as HR activity will help in maintaining motivation levels of the employees
and in turn generate more productivity.
CONS OF PRIVITIZATION

 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.
 70% of the banking industry consist of Public Sector Banks and most of them are
profit making. Hence these banks have done most things right to be kept running the
way they are.
 Private Banks are profit oriented and they may not venture into rural areas citing
losses. Hence in rural areas PSB’s are the only way forward as they look for social
welfare first and profits later.
 People working in the private sector have a large number of working hours. Hence a
work-life balance would be hard to maintain. It may lead to lesser productivity.

A MIDWAY APPROACH- PPP

We have reached a stage where we need the advantages of both these models to be
combined to run a highly stable banking system. On one hand, we cannot allow the
inefficiencies of the loss making public sector banks to run as they are and create more
headaches on the government and have a negative impact on the banking system as a whole.
On the other hand, we also cannot allow the private sector to completely dominate the
banking sector as the poor run the risk of being forgotten. Hence, a PPP is a good solution.
We can have private work culture with government monitoring.

CONCLUSIONS

We can conclude in 3 phases

 The PSB which are profit making and having a good growth need to be left as they
are. Any tampering would not be desirable. Reforms need to be done on improving
productivity and implementing the Basel 3 norms.
 The PSB’s which are running in loses and are in a recoverable state may work in PPP.
It will ensure a holistic work culture and also have government monitoring.
 The PSB’s which are running in loses and have no chance of recovery need to be
disinvested completely by the government. It will reduce the burden on the
government as well as help the tax payer’s money to be used in more productive ways.
Complete privatization may just help it to recover where non privatization is clearly
not working.