InvestorQ : What is the controversy over the article in the RBI bulletin about the privatization of PSU banks?
Rutuja Nigam made post

What is the controversy over the article in the RBI bulletin about the privatization of PSU banks?

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2 months ago
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You can actually call it an unnecessary controversy created by some members of the press who just misinterpreted the article in the RBI bulletin. The focus was just on why the government must avoid a big-bang approach to privatization of PSU banks. It is well researched and backed by empirical evidence. The press made it look like the RBI was making a case for not privatizing PSU banks. As a result, the RBI came out and clarified that the article reflected the views of the author and not that of the RBI. Here is why.

The article in the RBI Bulletin covered 3 interesting points on privatization. The role played by PSU banks on financial inclusion has been broadly highlighted. The article also underlined how the PSU banks had made substantial progress in reducing NPAs, improving profitability and quality of revenue mix in last 3 years. PSU banks have been more open to lending to infrastructure and new ideas than just giving consumer loans. The government, after all, is struggling with privatising IDBI Bank. It also raises question on why should the government support the banks and then give it away on a platter.

The article highlights an important point that banks cannot be just consumer lenders, even though they look like low-hanging fruits. Most private banks have leveraged the benefits of the financial inclusion triggered by the PSU banks. However, private banks have contributed very little to the process of financial inclusion. The article is well timed in that it does call for some introspection and asking some hard questions. Big bang sale of PSU banks across the board is not the answer. Especially, not if it is going to be sold on a platter for a low price!

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