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Mahesh

19/08/22 11:35 AM IST

Big bang privatisation of banks can do more harm than good

In News 
  • The RBI said that Big bang privatisation of public sector banks can do more harm than good.
Privatization 
  • The transfer of ownership, property or business from the government to the private sector is termed privatization.
  • The government ceases to be the owner of the entity or business.
  • Privatization is considered to bring more efficiency and objectivity to the company, something that a government company is not concerned about.
  • India went for privatization in the historic reforms budget of 1991, also known as the ‘New Economic Policy or LPG policy’.
Major Findings 
  • The gradual approach to privatization adopted by the government could ensure that a void was not created in fulfilling the social objective of financial inclusion and monetary transmission.
  • PSBs (Public Sector Banks) had played a key role in catalyzing financial investments in low-carbon industries, thereby promoting green transition.
  • Financial inclusion goals: Evidence suggested that public sector banks were not entirely guided by the profit maximization goal alone and have integrated the desirable financial inclusion goals into their objective function unlike private sector banks, the report said
  • Countercyclical role of PSB lending: In recent years, these banks have also gained greater market confidence.
  • Despite the criticism of weak balance sheets, data suggests that they weathered the COVID-19 pandemic shock remarkably well.
  • Consolidation of the sector has created robust and competitive banks: Recent mega-mergers of PSBs have resulted in the consolidation of the sector, creating stronger and more robust and competitive banks.
  • National Asset Reconstruction Company Limited (NARCL): The authors also pointed out that the establishment of the National Asset Reconstruction Company Limited (NARCL) would help in cleaning up the legacy burden of bad loans from their balance sheets.
  • National Bank for Financing Infrastructure and Development (NABFiD): The recently constituted National Bank for Financing Infrastructure and Development (NABFiD) would provide an alternative channel of infrastructure funding, thus reducing the asset-liability mismatch concerns of PSBs.
Source- Indian Express 

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