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Banking

Privatisation of PSBs Will Deal a Blow to Reservation, Government's Coffers

Reports suggest that an amendment will be moved in the next session of parliament to smoothen the government's complete exit from the public sector banks that are being put up for sale.

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The contentious issue of bank privatisation has once again come to the fore after business newspapers reported that the Union government is keen on introducing an amendment in the upcoming monsoon session of parliament to smoothen the path for the government to make a complete exit from the public sector banks (PSBs) that are being put up for sale. 

Under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the Union government is required to hold at least a 51% stake in PSBs. Earlier, the government line on this subject was that the Union government would ideally retain a 26% stake in the PSBs even during privatisation, which could subsequently be scaled down.

Reportedly, the finance ministry is currently in talks with the Reserve Bank of India (RBI) over resolving issues of ownership and controlling stakes. These developments assume greater importance when seen in the context of the Department of Investment and Public Asset Management conducting road shows in the US to sell IDBI Bank.

PSBs employ around 8.26 lakh people, including those who belong to Scheduled Caste (SC), Scheduled Tribe (ST), Other Backward Classes (OBCs) and the Economically Weaker Section (EWSs). They implement reservation policy strictly.

Employees who benefit from reservations will be hit worst by privatisation. In addition, the government seems intent on privatisation despite the dismal past experience, not to mention the disastrous listing and subsequent share price collapse of the insurance behemoth LIC.

A note released by the People’s Commission on Public Sector and Services said, “A significant portion of [SC, ST and OBC employees] occupy managerial positions in those banks. Reservations in employment need to be viewed, not merely from the point of view of the creation of employment opportunities alone but, more importantly, from the larger socio-economic benefit of empowering and uplifting them.”

The note said that privatisation of even a single PSU bank would not only create uncertainty regarding the conditions of service of the existing SC, ST and OBC employees (as also similar uncertainty in the future of all other employees) but also “permanently close the constitution-given opportunity for new recruitments to that extent”.

Employees of bank unions in a strike. Photo: PTI/Shashank Parade

The People’s Commission on Public Sector and Services also pointed out that the private promoters of the much-touted Global Trust Bank had let down the bank’s unfortunate depositors, and the RBI and the government were forced to direct a PSU bank in 2004 to rescue whatever had been left of that errant private bank. “The recent Yes Bank fiasco,” the note continues, “is another example where a PSU bank had to save a failing, mismanaged private bank.”

Going back in history, when private banks were first nationalised, the government had consciously stated in parliament that the purpose of this move was to “sever the link” between the banks and the industrial groups to whom they give credit. Privatising a PSU bank, the commission contends, would amount to restoring such an egregious link, which involves a clear conflict of interest. The commission argues that the way the government has so far gone about privatising the CPSEs points to the absence of any due diligence.

In the meanwhile, PSBs’ position stands weakened because of the long list of corporate houses that are heavily indebted to these banks. To this day, the names of a number of large loan defaulters have not been made public while PSBs continue to suffer the consequences of the fraud perpetrated on them by private parties. Despite the assault of fraudulent businessmen and corporates on the balance sheets of the PSBs, the operating profit of 12 private sector banks – excluding IDBI Bank and regional rural banks – stood at a whopping Rs 2.08 lakh crore in March 2022. Additionally, their net profit, which doubled in the course of a year, stood at Rs 66,541 crore. The government’s privatisation bid becomes all the more inscrutable given the huge dividends and taxes that it receives from the banks.

“LIC has invested 51% share in IDBI at the cost of Rs 61 per share and has turned around the failing bank. Laws should be amended if needed to allow LIC to own the bank permanently, as banks have been allowed to run insurance companies. The government cannot discriminate. Selling IDBI Bank to foreign investors through road shows is against the declared policy of self-reliance. Hence, we appeal to the government not to bring the bill to Parliament and not to privatise public banks. We also appeal to the government to allow LIC to run IDBI successfully,” the note states.