InvestorQ : Has the RBI bulletin warned against privatization of banks?
ishika Banerjee made post

Has the RBI bulletin warned against privatization of banks?

2 months ago

If you read the RBI Bulletin, the issue is not about the RBI being against privatization because the very idea of gradual disinvestment was mooted by the government. However, the RBI has put across a different perspective in one of the articles in the Bulletin. The July RBI Bulletin has cautioned that too much of aggressive privatisation of PSU banks can do more harm than good. In fact, they feel that privatization of the PSU banks just for the sake of it may be counterproductive considering that banks also play a key social role in India.

The RBI bulletin has, therefore, called for a more nuanced approach rather than a blanket approach. PSU banks have the additional role of fostering financial inclusion and the Jan Dhan would not have happened but for PUS banks. For example, PSU banks have catalysed investments in low carbon industries and also have taken more risk. In many of the early stage infrastructure segments also, the PSU banks had taken the lead. However the private banks had focussed more on consumer loans and personal loans to the public.

The RBI Bulletin also pointed out that mega mergers had promoted synergies leading to consolidation. A series of two-way and three-way mergers of PSU banks had sharply reduced the number of PSU banks in India making them larger in size and hence more competitive. They are also likely to save costs. RBI suggested more aggressive reforms to strengthen these PSU banks rather than blanket privatization. PSU banks have been partners in nation building, so there must not be a blind focus on privatizing all of them.