Finance Minister in its budget speech has announced that government target is to collect 1.75 lakh crore Rs in fiscal year 2021-2022.government has decided to disinvest its stake in some government owned public sector units(PSU) And to bring initial public offering(IPO) of LIC and financial institutions.
One note to mention here is, government sells its share in public companies by 2 ways:
2.through ipo of public companies
The government intends to complete the disinvestment process of bharat petroleum latest by july-august this year,selling its stake in shipping corporation,container corporation of india and to bring ipo of life insurance corporation in present fiscal year.The Union Budget 2021 has also announced the privatisation of two public sector banks and one general insurance company in the upcoming fiscal 2021-22.
The move, coming after 51 years of nationalisation of government-owned banks in 1969, will give the private sector a key role in the banking sector.Presently, India has 22 private banks and 10 small finance banks.the government also announced in the present budget of setting up of asset restructured company(bad bank) entirely owned by banks, underlining an approach of finding market-led solutions to challenges in the financial sector.
On one hand disinvestment of public companies will help the government in achieving its target revenue while on the other side permanent job stability of employees and their years on government style of working will be affected.
The government is trying to strengthen the strong banks and also minimise their numbers through privatisation to reduce its burden of supporting the PSB Banks.The PSB Banks have high non performing assets and stressed assets and condition is more declining after the impact of covid.As per the RBI’s recent Financial Stability Report, gross NPA ratio of all commercial banks may increase from 7.5% in September 2020 to 13.5% by September 2021. Inspite of injecting equity by the government from past years the NPA of public banks have increased and their market share has fallen to 59.8% in 2020 from 74.28% in 2015.
The government is also going to list LIC in stock market by bringing its IPO this year.despite being LIC a profitable corporation,government is selling its stake because of declining tax collections and sharp deceleration in the economy.When lic will be listed on stock exchange it could easily emerge as country top listed company in terms of market valuation.The government is expecting over 70,000 crore from the sale of undisclosed stake in lic.Listing of life insurance corporation on stock exchange will also provide access to financial markets and unlock its value.It will also give retail investors a chance to participate in wealth creation
The general insurance sector comprises of 4 public sector companies of which there is speculation of united india or oriental insurance to be privatized.There has been another major announcement, that of raising the limit for foreign direct investment (FDI) in insurance to 74% which will, indeed, have a far-reaching impact on the insurance landscape in India.it will be the first step of centre to privatize one general insurance company after nationalization of general insurance sector in 1972.
The reason given for privatisation of PSB from the government is the degrading financial conditions of public sector banks after Years of capital injections and governance reforms have not been able to improve the financial condition of public banks. Public banks also have higher levels of stressed assets than private banks, and also lag with private banks in profitability, market capitalisation and dividend payment record.This will free up the government, the majority owner, from continuing to provide equity support to the banks year after year.
However, all india bank employees federation(AIBEF) have called for two days continuous strike on 15-16 march 2021.the AIBEF union said that public sector banks have earned total profit of rs 14,57,000 crore from 2010-2020.Jan dhan yojana and mudra yojana have also been much facilitated by public sector banks.Banks unions have also mentioned that 75% of total branches of public sector banks have opened 40.5 crore new bank accounts of poor people. AIBEF proposed that the policy discussion on the ways and means of reforming and strengthening the public sector banks should be initiated by the Union government.
Seeing the protest from bank employees unions,the government might face challenges in implementing its decision to privatize PSB.Now it’s upon the government to satisfy the demands made by the bank employees union.