Government Keen To Speed Up Stake Sale In Four State-Owned Banks: Report

Prime Minister Narendra Modi's office has asked officials to speed up the process of trimming government stakes in at least four primarily state-owned banks within the current fiscal year, news agency Reuters reported on Tuesday, quoting two officials familiar with the discussions. The sources said the four lenders are Punjab & Sind Bank, Bank of Maharashtra, UCO Bank and IDBI Bank, in which the government owns majority stakes through direct and indirect holdings. The government wants to overhaul the banking sector and is also pushing the privatisation of banks and other state-run companies to help raise funds for budgeted spending amid a fall in tax collections due to the economic downturn caused by the pandemic.

According to Reuters, The prime minister's office wrote a letter to finance ministry earlier this month asking it to expedite the process of privatising these lenders in the current financial year, which ends in March 2021, said one government source with direct knowledge of the matter. "The process of privatising the banks has started," the person said, adding some consultations had already take place.

The prime minister's office and lenders did not immediately respond to requests for comment, while the finance ministry declined to comment.

The sources, who declined to be named as the discussions are private, noted the government's timeline is aggressive and might be a challenge given current market conditions.

Last month, it was reported that the government is looking to privatise more than half of the state-owned banks to reduce the number of state-owned lenders to just five, from the existig 12. Back then, Reuters had reported that Central Bank of India and Indian Overseas Bank were also part of the said list.

The move to privatise banks also comes ahead of an anticipated surge in bad loan growth at the lenders, which could force the government to inject fresh funds to bail out state-run lenders.

However, the stake sale in these lenders will be challenging and may spill into the next financial year as these banks are already burdened with a higher proportion of bad loans, the Reuters report stated, quoting banking and government officials. Another government official reportedly said that more consultations would be held before the process proceeds.