Latest Update on Privatisation of Public Sector Banks

The government's intention to privatize two public-sector banks (PSBs) has reportedly been put on hold. The Indian government recently declared its intention to privatize a number of public sector banks. However, since the PSU Banks are now profitable and have exhibited strong performance, the idea has been delayed. 

The following are the primary causes of the delay in bank privatization: 

Public Trust in PSU Banks and Bank Unions

In recent years, PSBs have reported strong financial growth, even outperforming some private banks. Their combined net profit surged to ₹1.41 lakh crore in 2023-24, up from ₹1.05 lakh crore in 2022-23.

Experts had predicted that following the conclusion of the general elections in May 2024, the government would move forward with the privatization of PSU Banks. However, this did not occur. In line with the new Public Sector Enterprise (PSE) policy, which sought to restrict the number of public-sector players in vital industries to four, Finance Minister Nirmala Sitharaman had first declared plans to privatize two PSBs in the Union Budget for 2021–2022. The decision was also meant to encourage general growth and increase competition in the banking industry.

However, the government has yet to finalise the necessary amendments to key laws, including the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 and the Banking Regulation Act of 1949, which are required to facilitate privatisation.

The government finds it difficult to privatize PSU banks. These are very big banks and are vital for the growth of the Indian Economy. Additionally, Indians have faith in public-sector banks. The government and high-ranking officials may have changed their minds in the wake of YES Bank's demise and the current bad press regarding IndusInd Bank. 

 The government has direct control over a number of economic factors through public sector banks. Additionally, through a number of government-sponsored initiatives, the government has brought these public sector banks and the general public together. Private sector banks prioritize making money, and there is concern that they may not be as interested in supporting government initiatives.

Aside from this, employees and bank unions have strongly opposed the privatization plan. Unions contend that by directing public savings into priority industries like agriculture, PSU Banks contribute significantly to the development of the country. India's economy has developed quickly because of these institutions. Strikes against privatization have been threatened by bank unions. This persistent opposition is said to be a major factor in the government's reluctance to proceed with its plans for privatization.