The privatization of PSU Banks appears to be the next major policy initiative for the Modi government. No PSU Bank is identified for privatization as yet but the process is underway.
According to Sanjay Nayar, CEO & Country Head of KKR India, it will save government resources. Currently, with frequent capital infusion, the government is putting capital in the dark hole.
However, the task at hand is going to be a tedious one. Years of unprofessional governance has left these banks with a huge pile of NPAs. Hence, the first priority for the government should be to put high-standard governance mechanisms in place to attract private investors.
Handling NPAs and its resolution are going to be key issues. In the current scenario, the speed of the IBC process is slow and frustrating for the companies and policymakers alike.
Post Covid-19, efforts for privatizing PSU Banks could revive. However, the amendment of the bank nationalization act would be the first major test for the government. The act necessitates the government to maintain at least 51% stake in the PSU Banks at the moment.
Private players' interest also relies on the government's stand on its stake. While Potential buyers might consider the Branch network and rural penetration as the strong points, they would be put off if the government continues to have a dominant say.
Private investors will not be in sync with the objectives of providing loans to weaker sections of the society or investing in unviable projects. Hence, the market's appetite will be based on how much control will the government give away.
According to SS Mundra, former deputy governor of RBI, the ground for privatization has already been laid upon with recent mergers of PSU Banks. He believes that the banks already merged will stay under the government's control while remaining ones could be put on the block.
However, given the quality of the assets of these banks, it is difficult to see private players bidding for them.
