As the Modi government shifts its strategy towards ‘prudent public wealth management’ the prospect of privatising PSBs are increasingly unlikely.

Announcing Modi - government's policy on disinvestment of central public sector undertakings (CPSUs) in her Budget speech for FY 2021-22 the Union Finance Minister, Nirmala Sitharaman had talked of  privatizing two public sector banks (PSBs) and one insurance company.

A CPSU is an undertaking in which the Central government has majority share holding of more than 50 percent. Disinvestment refers to sale of its shares to private investors. When, such sale results in reduction of the government's shareholding in the CPSU to below 50 percent and concomitant transfer of ownership and management control to private entity, this is termed as privatization.The disinvestment plans have met with disappointing results so far.

During 2021-22, against a target of Rs 175,000 crore, the actual proceeds from share sale of CPSUs were a meager Rs 15,440 crore.  During 2022-23, against a target of Rs 65,000 crore, the actual was Rs 31,059 crore. For 2023-24, the actual was Rs 14,564 crore against a target of Rs 30,000 crore which itself was watered down from the budget estimate (BE) of Rs 51,000 crore.

As for privatization, except for the sale of Air India to the Tata Group during 2021-22, the government has little to show. Apart from offloading 3.5 percent of its shareholding in the Life Insurance Corporation (LIC), it is selling its stake in the IDBI Bank. The process of selling the latter that started in May 2021 is likely to get consummated during the current FY.

However, it can't be termed as privatization as already the bank was operating as a private lender even as the Centre became its passive shareholder consequent to capital infusions to manage former's bad debt losses. Currently, the government and the LIC collectively own 94.72 per cent of IDBI Bank with shareholding of 45.48 percent and 49.24 percent respectively (the remaining 5.28 percent is with Public shareholders).  Of this, the Centre plans to sell a 60.7 percent stake, comprising 30.5 per cent of its own and 30.2 percent of LIC's.

Will the Centre take up selling of PSBs and an insurance company - as promised in the 2021-22 budget?

It seems unlikely. If, that were to be the case, the government ought to have set a target for 'receipts from disinvestment' in its budget for 2024-25. But, it hasn't even as the FM has made a provision for Rs 50,000 crore under the head "miscellaneous capital receipts". This has happened for te first time in a decade.

Second, Team Modi is reviewing its strategy to shift its focus from selling CPSUs to what it euphemistically describes as 'prudent public wealth management (PWM), supporting not-for-profit enterprises, and ensuring strong presence of state-run firms in strategic sectors'. Banking, insurance and financial services (BIFS) were one of the four strategic sectors mentioned by Nirmala Sitharaman in her budget

speech for 2021-22.

BIFS also qualifies for not-for-profit enterprises categorization especially when it comes to PSBs which are expected to contribute to realizing social objectives such as reaching out banking services to remote and inaccessible areas; making concessional credit available to small and marginal farmers and other vulnerable/deprived sections of the society; funding infrastructure development particularly in areas (for instance, rural roads, housing for the poor etc) where private banks

may not be so keen to come.

Modi - government's commitment to a strong presence of state-run firms in strategic sectors juxtaposed with support for not-for-profit enterprises clearly signals that it has lost interest in privatizing PSBs and insurance companies.

Third, unlike the previous two terms when BJP had an absolute majority in the Lok Sabha on its own, in the third term, it depends on the support from its major allies namely TDP and JD (U) for implementing far reaching decisions such as privatization. Moreover, in the current political environment wherein even a small move such as 'lateral entry' of specialists from the private sector (the sole intent behind this step was to deliver more effective governance in sync with contemporary challenges) is opposed by the opposition parties forcing the government to retreat, it wouldn't be inclined to make a big move such as privatization of PSBs.

About a decade back, many of PSBs were on the brink. The present dispensation has made a lot of efforts to them pull back. These included amongst others capital infusion, enactment of the Insolvency and Bankruptcy Code (IBC) for expeditious resolution of non-performing assets (NPAs), banks consolidation into fewer entities for achieving scale and greater efficiencies, computerization of bank branches and so on. Today, they are robust and healthy even as the performance of some of them is even better than private banks.

this is fine.

But, we shouldn't miss the big picture. Fundamentally, most of the ills associated with the functioning of CPSUs including PSBs have a lot to do with their continued majority ownership (share holding of more than 50 percent) and control by the government. This brings them under a plethora of controls and monitoring/surveillance/vigilance and has the effect of shackling its management.

Armed with it, the political establishment makes all board level appointments viz. CMD/MD etc and deputes bureaucrats on a bank's board to represent its overwhelming ownership. In other words, the entire board is geared to listen to his master's voice (read the political bosses) when it comes to taking policy decisions or even in its day-to-day running. In the past, meddling in the affairs of PSBs took the form of what came to be known as the cult of 'crony capitalism'.

The businessmen patronized by the ruling class managed loans on considerations other than merit and got them ever-greened (taking a new loan to payback the earlier one). Neither, the banks insisted on repayment, nor the defaulters had any sense of fear as those who were expected to take action, chose not to.

In the past, the political brass also rode piggy back on PSBs for absorbing losses/liabilities created by populist policies such as supplying power to farmers and households at subsidized rates, (or even free in some states). Be it a spate of bail-outs given to power distribution companies (discoms) or loan waivers given to farmers etc, these   inflicted heavy loss on PSBs.

zhe idea of disinvesting PSBs should be seen as a befitting response to the dire need for reducing bureaucratic interference and granting autonomy to their management for speedy decisions and improved functioning. It was first mooted by the NDA - dispensation under the then, prime minister Vajpayee (1999-2004). It had proposed reduction in government's shareholding in PSBs to less than 50 percent initially and eventually to 33 percent.

In 2015, a RBI committee headed by P Nayak recommended setting up of a bank investment company (BIC) where all government shares in PSBs will be vested and divestment of its shareholding in all PSBs to below 50 percent. It also proposed setting up of an autonomous Bank Boards Bureau (BBB) to select their top management.

In 2020, the RBI recommended reduction in the shareholding of the government in six top PSBs to 51 percent. In a follow up meeting, it went a step further to recommend reduction in government's stake to 26 percent. The 2021-22 budget announcement to privatize two PSBs was a good step forward, though belated. To put it on the backburner now doesn't bode well for banks' health in the long-term.

(The writer is a policy analyst; views are personal)