The government promises us a big privatisation initiative. It’s not clear whether this includes the transfer of public sector banks to private control. It may mean just dilution of government stakes in PSBs below 50 per cent.
A proper case for PSB privatisation hasn’t been made. In a recent article in EPW, I make three points:
i.It isn’t true that PSBs have consistently underperformed private banks. The sharp divergence in performance is post 2010 and is the result of PSBs taking a large exposure to infrastructure and related sectors as part of the government mandate.
ii. Dropping government stake below 50 per cent is okay provided government continues to be an active investor. Leaving it to institutional investors to manage PSBs is risky as we are yet to develop a culture of professional managers accountable to institutional investors
iii.Valuation will prove tricky and selling PSBs at today’s distressed prices will evoke accusations of a scam that could paralyse PSBs and the government.
Better now to focus on improving PSB performance under the framework of government ownership. There is a marked improvement of late and we may expect more.
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