Govt to privatise two PSBs and insurance firms, LIC IPO slated for FY22

Asset reconstruction company to take over all stressed assets from bank books, manage it before selling it further to private parties such as distressed assets funds

The government will start the process of privatisation for two more public sector banks, other than IDBI Bank, and two insurance companies in financial year 2021-22, Finance Minister Nirmala Sitharaman said in her budget speech on Monday.  

Life Insurance Corporation of India (LIC) will go for an initial public offering in 2021-22 as well, she said.  

This asset reconstruction company (ARC), or asset reconstruction management company will take over all stressed assets from bank books and manage it before selling it further to private parties such as distressed assets funds, to unlock value.  

The idea of a bad bank was in discussion for some time, while former deputy governor Viral Acharya pushed for it aggressively from his very first day in office. The details are awaited, but the ARC or stressed assets management company seems to be flowing in the direction that Acharya had outlined.  

The FM said in her speech that in fiscal 2022, the government will undertake privatisation of two more public sector banks and insurance companies, while allocating Rs 20,000 crore for recapitalisation of banks.  

The government is also moving an amendment to ensure that the deposit insurance of Rs 5 lakh per account is recovered by the depositors in a time bound and easy manner even when the bank in question is in stress.  

There will be an alternate framework for debt resolution for micro-small and medium enterprises.  

Also, in a major boost to the bond market, the FM said there will be a permanent institutional framework that will buy investment grade securities, both in time of stress or in normal times, from companies. This will enable depth and liquidity in the corporate bond market. 

Also, in a major boost to infrastructure sector, the FM said there will be a development finance institution with an initial capital of Rs 20,000 crore so that it can lend to infrastructure projects worth Rs 5 trillion in three years.