RBI warns against big bang privatisation of public sector banks: Report

The Reserve Bank of India (RBI) has warned against privatisation of public sector banks, saying the big bang move can do more harm than good. The bank regulator has urged the Narendra Modi government to take a nuanced approach, PTI reported.

In its latest bulletin, the RBI said that the public sector banks have performed better in terms of promoting financial inclusion. The private banks are more efficient in profit maximisation, the bank said.

The RBI said that privatisation is not a new concept and its pros and cons are well known. “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,” the RBI said.

The top bank said that the government should have a gradual approach to privatisation as it can ensure that a void is not creating in fulfilling the social objective of financial inclusion and ‘monetary transmission’.

The Reserve Bank said that the public sector banks have played a crucial role in ‘catalysing’ financial investments in low-carbon industries and have promoted green transition in Brazil, China, Germany, Japan and the European Union, PTI report said.

Citing that public sector banks are not entirely guided by profit maximisation goal, RBI said that such banks have integrated the desirable financial inclusion goals in their objective function unlike private sector banks.

“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,” it said.

The central bank said the views expressed in the article are of the author and do not represent that of Reserve Bank of India (RBI).