“Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” Nirmala Sitharaman said.(Reuters)
“Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” Nirmala Sitharaman said.(Reuters)

Government to start privatisation with 2 small PSU lenders

Analysts say state-run Punjab and Sind Bank and Bank of Maharashtra are the two likely candidates.
Livemint | By Gopika Gopakumar, New Delhi
PUBLISHED ON FEB 02, 2021 02:03 AM IST

Finance minister Nirmala Sitharaman on Monday said the government plans to privatise two state-run banks along with IDBI Bank in the next fiscal.

In the Union Budget 2021-22, the government also budgeted 1.75 lakh crore from stake sale in public sector units, also including a general insurance company, in the financial year beginning April 1.

Delivering her budget speech in the Lok Sabha, Sitharaman said legislative changes will be introduced during this parliamentary session to enable the divestment.

“Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” Sitharaman said.

“I propose to introduce the [legislative] amendments in this Session itself,” she added.

Though she did not specify the names of the other two banks that the government aims to privatise and the size of stakes that would be sold, analysts said the Punjab and Sind Bank and the Bank of Maharashtra could be the likely candidate.

After the merger of 13 public sector banks in the last five years, Sitharaman was expected to make a policy announcement on privatisation of state-run banks in next fiscal year’s budget as a first step towards overhauling the banking sector.

Analysts expect the government to test waters by first privatising the smaller state-run banks that were excluded from the merger last year.

Among the six banks that were not part of the merger, Punjab and Sind Bank and Bank of Maharashtra are the most likely candidates as much of the clean-up of the balance sheets has already taken place.

Both have also received significant capital infusion from the government in the last few years, which has helped resolve their bad loans. Bank of Maharashtra’s gross non-performing assets (NPAs) as a percentage of total assets stood at 7.69% at the end of September quarter, whereas Punjab & Sind Bank’s gross bad loan ratio was at 5.87%.

Punjab and Sind Bank was the only bank to receive capital infusion of 5,500 crore this fiscal.

Bank of Maharashtra exited the prompt corrective action (PCA) framework after getting nearly 7,800 crore of capital in financial year ’18 and financial year ’19.

Also read: ‘Important to back asset creation’ says Nirmala Sitharaman

“Given the six banks kept out of merger, three are under PCA (prompt corrective action) — Indian Overseas Bank, Central Bank, and UCO Bank. These banks are unlikely to be offered for privatisation because of poor investor demand. Further, the government is unlikely to consider Bank of India because of its large size,” said Anil Gupta, vice- president and sector head, financial sector ratings, ICRA Ltd.

Concerns remain on how the government will proceed with its plan as lowering sovereign support could affect depositor confidence in these banks. Many successive governments had promised to privatise state-run banks, but did not do so on political concerns.

The stock market cheered the announcement with Bank Nifty galloping 8.26%, led by stocks such as ICICI Bank, which went up 13% and State Bank of India, which rose 11%.

Air India disinvestment to be completed in FY22

Disinvestment of Air India and Pawan Hans would be completed in 2021-22, Sitharaman said, while presenting the Union Budget, in which 3,224 crore has been allocated to the Civil Aviation Ministry for the next fiscal year.

Air India is currently undergoing disinvestment process. Multiple entities submitted their expression of interest (EOI) for the carrier in December. The government is likely to reveal the names of qualified bidders in the coming weeks.

Air India Asset Holding Ltd, a special purpose vehicle (SPV), was set up in 2018 as part of the financial restructuring of the debt-laden national carrier. In the Budget for 2021-22, 2,268 crore is proposed to be allocated for the SPV.

The debt of Air India, as of March 31, 2019, was 58,255 crore.Making another attempt to exit from the chopper operations business, the government in December last year issued a fresh bid document for strategic disinvestment in Pawan Hans.

(With PTI inputs)

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