Banks headed for privatisation may get most of allocated funds

The government could allocate a big chunk of the revised estimate of ₹15,000 crore for bank capitalisation allocation for 2021-22 to banks identified for privatisation, as it is confident of moving ahead on its privatisation plans by the second quarter of 2022-23, people aware of the matter said.

The strategy is to strengthen the balance sheet of these lenders in order to generate potential investor interest, a government official said.

Finance minister Nirmala Sitharaman had announced privatisation of two public sector banks as part of the disinvestment programme for this fiscal. Niti Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank for the purpose. However, a final decision on the candidates is yet to be taken.

The government has slashed the allocation for bank capitalisation for the current fiscal by Rs 5,000 crore to Rs 15,000 crore in the revised estimates. Further, it has made no provisions for bank capitalisation in the budget for 2022-23.

"Most state-run lenders have plans to raise capital on their own strength, so there is no pressing need for meeting regulatory requirements or growth capital," said the official cited above.

Central Bank is the only lender remaining under the Reserve Bank of India's prompt corrective action (PCA) framework.

"A draft cabinet note for amendments to relevant Acts is under inter-ministerial consultation," the official said, adding that the government has not put its plans to privatise two public sector banks on the back burner.

The government has not listed the Banking Laws Amendment Bill 2021 in the ongoing session of Parliament. The bill seeks to make changes to the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 and 1980, and incidental amendments to the Banking Regulation Act, 1949.

One of the key proposals of the bill is that the government will retain 26% stake in the banks identified to be privatised.

"The consultations are ongoing and the government is committed to the announcements made in the 2021-22 budget," a second official said.

In the 2022-23 budget, the government has not budgeted any receipts from disinvestment of government stake in public sector banks and financial institutions, and lowered the disinvestment target to Rs 65,000 crore.