LATEST NEWS ON PRIVATIZATION OF BANKS

MERGER OF PSBS - NEWS OF MERGER OF 4 BANKS

DATED 02.07.2024 : It is reported now that UCO Bank has clarified to SEBI regarding a news item about the merger of Four Public sector Banks ie UCO Bank , Bank of Maharashtra , Central Bank of India and Punjab & Sind Bank . It is reported that the UCO Bank has termed the report as "factually incorrect." .

UCO Bank has also stated "All the decisions relating to merger shall be under the purview of the government. The bank has no role in the decision relating to merger and as of now, it is not in receipt of any information from the government about merger. Hence, the abovementioned news item is factually incorrect,"

Earlier there was a news item in a leading TV media quoting " sources " that Government is mulling an idea of going for 2nd round of PSB mergers and it has two options . Out of the two options that the government is considering, the first option could be the merger of UCO Bank, Bank of Maharashtra, Punjab & Sind Bank, and Central Bank of India. The second option is to merge with Union Bank of India, Canara Bank or Indian Bank according to the banking software.

MERGER OF PSBS - NEW SPECULATIONS

UPDATE DATED 17.12.2023 : Ministry of Finance has now clarified that the parliamentary committee on subordinate legislation has no connection whatsoever with the policies of bank mergers . Hence all the rumours , based on the legislative committee meeting agenda . about the merger can be laid to rest .
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Dated 17.12.2023 : It is reported ( in the social media and source could not be verified ) that the committee on subordinate legislation , Loksabha would have meetings with heads of various financial institutions like RBI , LIC of India , IRDAI , NABARD , UCO Bank , Union Bank of India , Bank of Maharashtra , Bank of India , and various public sector insurance companies in the first week of January 2024 at Mumbai and Goa in connection with examination of rules and regulations these institutions follow . The meetings will take place on 2nd , January 2024 at Mumbai and on 5th / 6th January 2024 at Goa

The discussions in the meetings are said to be informal and the subject of informal discussions with public sector banks include " regulatory mechanisms in post- merger scenario " . As the meetings discuss post merger scenario , rumours are afloat now that the discussions may lead to further mergers of public sector banks and names of the banks that are expected to be merged include the participating PSBS viz UCO Bank & Union bank of India and Bank of Maharashtra and Bank of India .

However as Loksabha elections are nearing , it's doubtful that the government would take any precipitative actions in the remaining few months before the election .

DISINVESTMENT IN IDBI BANK BY GOVERNMENT AND LIC :
DUEDATES EXTENDED

Dated 15.12.2022 : The Preliminary Information Memorandum (PIM) for inviting Expression of Interest (EoI) for the Strategic Disinvestment of a stake aggregating to 60.72% of IDBI Bank Limited by Government of India and Life Insurance Corporation of India along with transfer of management control was issued on October 7, 2022.

Now Timelines are extended as follows :


1. Last date and time for submission of Expression of interest is extended to 7th, January 2023 from the existing 16.12.2022 .


2.Last Date and time of submission of physical copies of EoIs (for IPs submitting EoIs electronically) is extended to 14th , January 2023 from the existing 23.12.2022

DISINVESTMENT IN IDBI BANK BY GOVERNMENT AND LIC :
PROCESS KICKSTARTS BY ISSUE OF PIM
DIRECT SALE TO SUCCESSFUL BIDDER

Dated 09.10.2022 : As a first step towards disinvestment of shares held by the Government of India ( GOI ) and Life Insurance Corporation of India ( LIC ) , Department of Investment and public Asset Management , Ministry of Finance has floated had called tenders in July 2021 for appointing Transaction Advisors & Legal Advisors separately . Consequently, the GoI acting through DIPAM has engaged KPMG India Private Limited as the Transaction Advisor (“TA”) and Link Legal as the Legal Advisors (“LA”) for providing advisory services and managing the Transaction. It is envisaged that strategic acquirer/investor will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank.

The Department DIAPM had received mandate from CCEA ( Cabinet Committee on economic Affairs ) to off-load up to 100% stake of GoI and LIC along with transfer of management control. It is clarified that LIC’s stake will be sold along with GoI’s shareholding in thistransaction.

Reserve Bank of India has already classified the bank as a private sector bank in view of less than 50 % holding by GOI even though LIC holds 49.24% (c. 529.41 crore shares) while the GoI holds 45.48% (c. 488.99 crore shares) in IDBI Bank as on March 31, 2022.

ABOUT IDBI BANK : IDBI Bank operates as a full-service universal bank serving customers from all the segments. IDBI Bank serves its customers through its wide physical network of 1,884 domestic branches, one overseas branch at Dubai International Financial Centre (“DIFC”), Dubai and one International Financial Services Centre (“IFSC”) Banking Unit (“IBU”) at Gujarat International Finance Tec–City (“GIFT”), Gandhinagar. The IDBI Bank’s physical network also comprised 3,400 ATMs as on March 31, 2022.

BANK DEPOSITS : Total deposits of IDBI Bank stood at c. INR 233, 133 Crore as on March 31, 2022. Retail Deposits, Savings Account Deposits, Current Account Deposits, Bulk Deposits accounted for 38% , 37% , 20% , and 5 % of aggregate deposits respectively.

ADVANCES :Global Gross Advances stood at c. INR 169,207 lac crore on March 31, 2022. Retail portfolio amounted to 63% of Global Gross Advances while the remaining 37% is apportioned to the Corporate Portfolio

BANK HISTORY : Industrial Development Bank of India (“IDBI”) was established in 1964 under the IDBI Act, 1964 initially as a wholly owned subsidiary of the RBI. In 1976, the ownership of IDBI was transferred to the GoI and it was regarded as the principal Development Financial Institution (DFI) and played a pioneering role, particularly in the pre- economic reform’s era, in catalyzing broad-based industrial development in India. On January 21, 2019, LIC acquired 51% controlling stake making it the majority shareholder of IDBI Bank. The RBI, consequently, categorized IDBI Bank as a Private Sector Bank for regulatory purposes with effect from January 21, 2019. that pursuant to the strategic disinvestment of IDBI Bank It has now been decided by the
(i) GoI shall sell such number of shares representing 30.48 % and
(ii) Life Insurance Corporation of India (“LIC”) shall sell such number of shares representing 30.24 %
aggregating to 60.72% of the equity share capital of IDBI Bank, along with transfer of management control in IDBI Bank.

DISINVESTMENT PROCESS : As per PIM ( Prelimimary Information Memorandum ) , A bidder / Interested Party ( IP ) should have minimum Net Worth of INR 22,500 crore , An IP, which is required to prepare a profit & loss account, must have reported profits (profit after tax) in at least 3 out of the last 5 financial years. Consortium can also be an IP . The IPs, if they so desire, may submit the complete EoI in electronic form via email at in-fmidbibankquery@kpmg.com with all the requisite documents in PDF format by the Due Date. Eligible interested parties have to submit their Expression of Interest ( EOI ) before 23rd , December 2022 .

Subsequently KPMG will shortlist qualified interested party ( QIP ) and call for Financial Bids from QIPs. GoI will evaluate the financial bids and approve the successful bidder . On being adjudged as the Successful Bidder, the RBI will undertake the final assessment of the Successful Bidder on the basis of its ‘Fit & Proper’ assessment and the Successful Bidder will be under an obligation to submit and comply with all the requirements and conditions (and provide all information) as may be indicated by RBI at the time of undertaking the final assessment of the ‘Fit & Proper’ assessment by RBI . A share purchase agreement will be executed by LIC and GOI with the Successful Bidder.

PRIVATIZATION OF BANKS MAY DO MORE HARM THAN GOOD : RBI ARTICLE

RBI CLARIFICATION DATED 19.08.2022 : Further RBI has issued following clarification on the article :

i) As clearly stated in the article itself, the views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India.

ii) The Press Release relating to the August 2022 Bulletin highlights that “the gradual approach to privatisation adopted by the government can ensure that a void is not created in fulfilling the social objective of financial inclusion”.

iii) The concluding paragraph of the article, inter-alia, mentions that:

- “From the conventional perspective that privatisation is a panacea for all ills, the economic thinking has come a long way to acknowledge that a more nuanced approach is required while pursuing it”;

- “Recent mega merger of PSBs has resulted in consolidation of the sector, creating stronger and more robust and competitive banks”;

- “A big bang approach of privatisation of these banks may do more harm than good. The government has already announced its intention to privatize two banks. Such a gradual approach would ensure that large scale privatisation does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission.”

Thus, the researchers are of the view that instead of a big bang approach, a gradual approach as announced by the Government would result in better outcomes.

Dated 19.08.2022 : A recent study done by the officers of Department of Economic Analysis of the Reserve Bank of India has come to an conclusion that " a big bang approach of privatization of these banks ( PSB s ) may do more harm than good. "

HIGHLIGHTS OF THE ARTICLE :

1 The article finds that while private sector banks (PVBs) are more efficient in profit maximization, their public sector counterparts have done better in promoting financial inclusion.

2 . Labour cost efficiency is higher in PSBs in comparison to PVBs.

3. Empirical evidence suggests that lending by PSBs is less procyclical than PVBs. Thus, PSBs help counter-cyclical policy actions to gain traction.

Hence the article suggests that the gradual approach to privatization adopted by the government can ensure that a void is not created in fulfilling the social objective of financial inclusion.

The detailed analytical article notes that " Our results also point out the countercyclical role of PSB lending. In the 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.

The article titled " Privatisation of Public Sector Banks: An Alternate Perspective* " also suggests that staff cost in public sector banks are more efficient than the private sector banks , which is contrary to the general belief spread by the persons advocating privatization .

The private article is prepared by Snehal S. Herwadkar, Sonali Goel and Rishuka Bansal of the Banking Research Division, Department of Economic and Policy Research, Reserve Bank of India and it doesn't reflect the views of RBI . However as the article is a detailed study of the banking in India , it may force the government to review its policy on the privatization .

​To read the article , CLICK HERE To read RBI Clarification , CLICK HERE