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Tag: co-operative banks

  • Will the Central Bank of India become a Private bank? | Why is the Government Privatizing banks?

    The Government of India had made a number of announcements and plans in the Union Budget of 2021-22 and one of the major plans was in regards to disinvestment of privatization. In this article let’s look at the plans of the Government in regards to privatizing the banks and whether the Central Bank of India would become a Private banking organization.

    Privatization of Public Banks – Latest News
    Reason Why Government is Privatizing the Public Banks
    Banks Officers’ Confederation on Privatization of the Banks
    FAQ

    Privatization of Public Banks – Latest News

    The Government of India had shortlisted 4 Public sector banks in order to privatize them in the fiscal year 2021-22. The four banks on the list are Bank of Maharashtra, Bank of India, Indian Overseas Bank and Central Bank of India.

    The Government of India has decided to privatize just two of these banks for now and according to certain reports NITI Aayog has decided to privatize the Central Bank of India and Indian Overseas Bank and their names were shortlisted by the organization.

    The report also added that the Bank of India will also be a candidate that is potential enough for privatization. In regards to disinvestment, NITI Aayog has submitted the names of two state-run banks and one general insurer to the secretaries of the committee.

    Reason Why Government is Privatizing the Banks

    The Modi Government has been pushing to sell all the assets that are owned by the Government in order to cover up the expenses for the Coronavirus Pandemic and to increase the revenue of the Government as it has spent a massive amount for the recovery from the pandemic.

    The announcement regarding the privatization of the banks was made during the Union Budget announcement of 2021-22. The Central Government has a target to gain around INR 1.75 lakh crore from the sale of stakes in the current fiscal.

    The Central bank of India and other public sector banks will probably become a private bank as the Government has already implemented it in many other sectors and to some banks as well. The country has only 12 public sector banks as compared to 27 in the year 2017.

    GDP of India
    GDP of India

    Banks Officers’ Confederation on Privatization of the Banks

    The Confederation of Bank officers does not seem to be much happy with the decision made by the Central Government. The officers had even called for protests and strikes regarding the case. The strike notice had conveyed the message that the decision of the Government in order to privatize the public sector bank is totally unwarranted and added that the requirement right now is to strengthen the public sector banks.

    It is found that the State Bank of India will be the only bank that would remain a public sector bank and the Government had justified this statement by saying that the bank is a strategic bank and it is responsible for the implementation of the public sector initiatives like expanding the rural credit.

    The Banking unions have conveyed that the same can be done to other public sector banks. They added that certain schemes such as MUDRA and Jan Dhan Yojana have been successful due to the vigorous implementation of the public sector banks.

    The unions also believed that during the pandemic they were an important part in implementing the measure in order to support the plans of the Government to provide liquidity and fiscal stimulus. Privatizing the public sector banks is like providing the money of the people to private hands with a different interest towards them.

    Conclusion

    The Government is also privatizing Air India, BPCL, and shipping corporations, and the process for it has already been started in the current fiscal year. The proposal regarding privatization is handled by DIPAM and the Department of Financial Services.

    FAQ

    Why do Governments Privatize?

    Privatization generally helps governments to save money and increase efficiency, where private companies can move goods quicker and more efficiently.

    What are some examples of privatization?

    Public sale of shares, Public auction, Public tender and Direct negotiations are some of the example of privatization.

    Which are the 2 banks that are going to be Privatized?

    The Government of India had shortlisted 4 Public sector banks in order to privatize them but has decided to privatize just two of these banks for now, which are the Central Bank of India and Indian Overseas Bank and their names were shortlisted by the organization.

  • The Revival of Punjab-Maharashtra Co-operative Bank

    PMC bank became the talk of the town when it issued an EoI (expression of interest) in order to identify suitable equity investors/group of investors to take over management control and revival of its current state. The EoI was issued in November 2020 and has to be submitted to the RBI by December 15.

    The Scam

    PMC has been under regulatory restrictions since RBI found irregularities in its financial operations and hiding and facilitating loans to Housing Development Infrastructure Limited (HDIL). Rs. 6200 crore have been exposed to HDIL in this matter. In 2019, Economic Offences Wing (Eow) of the Mumbai police, arrested PMC’s former managing director Joy Thomas in connection with the fraud. The promoters of HDIL, Rakesh Wadhawan and Sarang Wadhawan, too have been arrested and are currently in jail, facing money laundering charges.

    RBI found financial irregularities in its transactions and imposed regulatory restrictions

    PMC’s total deposits sum up close to Rs 10,800 crore, advances up to Rs 4500 crore, and gross non performing assets of Rs 3500 crore as on 31st March 2020. The bank has a share capital of Rs 293 crore but registered a loss of Rs 6800 crore during the year 2019-20. It has a negative net worth of Rs 5800 crore.

    The Revival

    In a letter to the bank’s customers and stakeholders, RBI appointed administrator  A K Dixit said that the bank has already rolled out various steps in order to recover from its current state. Recovery of bad debts, cutting costs and expenses, rationalizing several branches are a few of the steps taken on the revival front. Essential IT systems are being retained, staff expenses are being kept under a strict check and various means are being found to console the stakeholders and especially the depositors.

    RBI kept a strict check on its costs and expenses

    The administration stated that the bank is currently rolling out Rs 1 Lakh to all its depositors. Other than that, hardship payments of Rs 5 lakh are being made to those with Critical or life-threatening ailments like Cancer, Covid-19, ailments related to heart, kidney etc.

    A particular development has been observed during the revival process that 20 percent of the bank’s nine lakh customers haven’t withdrawn the entire sum of Rs 1 lakh. It looks like a silver lining in the days of doom as there are a few customers that believe that the bank is going to make it through this mess.

    Required Investment

    Potential investors have proposed to convert PMC bank into a small financing bank but first, it will have to meet the regulations and an approval by the RBI. The administration is reviewing several options of investments for bringing the bank back to life.

    RBI is looking for potential investors for the bank’s revival

    Currently, with a negative net worth, the bank will need Rs 5800 crore to bring back the net worth to zero and another 1000 crore to maintain the adequacy ratio of 9 percent to restart the business.

    Further proceedings

    Administrator will weigh pros and cons for each investor and give recommendations to RBI

    Initially, four entities had shown interest in investing but only three entities have submitted their interest in the revival of PMC so far. Mumbai based Surindar Mohan Arora (Ideal Group) is understood to have submitted the LoI (letter of intent). Identities of other entities have not yet been ascertained. The last date for submitting the LoI was December 15 2020. An extension has been granted and the investors have been given February 1, 2021 as the final date to submit their final offer. The RBI administrator A K Dixit will be studying the plus and minuses of all the Letters of intent. After their recommendations, RBI will take a call on which entity is suitable for taking over the management control and commencing day to day operations of the bank.