Govt's approach to PSB privatisation would result in better outcomes: RBI

The RBI issued this clarification after RBI's researchers argued in a recent article that a gradual approach to the privatisation of the public sector banks (PSBs) in India is better than the big bang

On Friday, the Reserve Bank of India (RBI) issued a clarification notification stating that the views expressed in its recent article, "Privatisation of Public Sector Banks: An Alternate Perspective, " do not represent the views of the bank and are of the authors. It also said that the authors are of the view that the government's approach to privatisation of PSBs would result in better outcomes. The article was authored by the researchers at RBI.

In the article, the authors argued that a gradual approach to the privatisation of the public sector banks (PSBs) in India is better than the big bang approach. It said, "During such stress periods if stronger PSBs had not existed, the destabilising impact on the banking sector and the economy would have been much greater."

However, the clarification said, "The researchers are of the view that instead of a big bang approach, a gradual approach as announced by the Government would result in better outcomes."

Also Read: Big-bang privatisation of PSUs can be harmful, says RBI article

It also quoted the report's concluding paragraph, "A big bang approach of privatising these banks may do more harm than good. The government has already announced its intention to privatise two banks. Such a gradual approach would ensure that large-scale privatisation does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission."

"Recent mega-merger of PSBs has resulted in the consolidation of the sector, creating stronger and more robust and competitive banks," it added.

The government had merged several PSBs, effective April 2020. 

Corporation Bank and Andhra Banks were merged with Union Bank of India. Syndicate Bank was merged with Canara Bank, Oriental Bank of Commerce and United Bank of India were merged with Punjab National Bank, and Allahabad Bank was merged with Indian Bank. Dena Bank and Vijaya Bank were merged with Bank of Baroda, and several associate banks were merged with the larger State Bank of India.

"The recently constituted National Bank for financing infrastructure and development (NABFiD) will provide an alternate channel of infrastructure funding, thus reducing the asset-liability mismatch concerns of PSBs," the RBI paper stated.