Banking to be a 'strategic sector', govt discussing privatising some PSBs

In each strategic sector, no more than four state-owned companies will exist
The Centre is likely to designate the banking/financial sector strategic under the new privatisation policy, the contours of which are nearing finalisation. A top government official said discussions had also been held on privatising some state-owned banks that are not on the consolidation list so far. 

According to the new privatisation policy, announced by Finance Minister Nirmala Sitharaman as part of the ‘Atmanirbhar Bharat’ package, the government will come up with a list of strategic sectors. In each strategic sector, no more than four state-owned companies will exist. After the latest round of consolidation of public sector banks, there are currently 12 PSBs.

“Banking is an obvious candidate to be designated as a strategic sector. There have been discussions on privatising the PSBs that are not part of our consolidation plans,” the official said, adding the long-term plan will involve having four mega-public sector banks (PSBs) through further mergers or privatisation. 

The official added that these discussions were at a very early stage and that any decision would be taken keeping all stakeholders in mind.

Since the announcement of the new policy, neither the finance minister nor anyone else in the government has given any time limit to the new privatisation policy, but the details are expected soon. Officials have said in private that once a sector is designated “strategic” or “non-strategic”, there is no fixed timeline in when the government will reduce its presence. In non-strategic sectors, the government plans to exit completely.


In August 2019, the Centre had announced a third round of PSB consolidation, reducing the number of PSBs to 12 from 18. 

But Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank have been left out of any consolidation plan so far, and Sitharaman had said then that they would continue to function as earlier as they have strong regional focus.

Sitharaman had announced the new privatisation policy on May 17. “In the notified strategic sectors, there would be only one to four public sector enterprises. They will be merged or brought together, so there won’t be mushrooming of the public sector,” she said, while adding that the private sector could come in strategic sectors.

Public sector enterprises (PSEs) play an important role in defined areas. We will come out with a coherent policy where the private sector will be allowed, but PSEs will continue to play an important role,” she had said. The move will clearly lead to ownership changes and a realignment of businesses, and boost the Centre’s privatisation plans.

Officials had then said that NITI Aayog could prepare a list of strategic sectors after consultation with various ministries. There may be no more than six to seven sectors in this list.

The proposed move will not impact existing strategic sale plans, including that of national carrier Air India. “This policy will in no way affect the privatisation of Air India,” Expenditure Secretary T V Somanathan had said then.

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