Delay in India’s bank privatization, Fitch

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The plan, announced in the budget in February, is part of the government’s broader divestment targets for the financial year 2022 and includes the privatization of several other state-owned non-financial companies as well as the listing of insurance giant LIC, told global rating agency, Fitch, on Monday. India’s plan to privatize two public banks (PSBs) in the financial year 2022 could be delayed as the “bold move” risks political opposition and structural challenges, including increased balance sheet stress following the Covid-19 pandemic outbreak. He also added that the pandemic could lead to slow operations of banks.

However, in anticipation of the risks of privatization measures, Fitch believes that the plan is a continuation of the government’s broader plan to reform the banking industry and further reduce the number of public sector banks. Compared to 2017 where we had 17 public sector banks it has been decreased to 3 in the current year.

The goal for Fiscal Year 22 at Rs 1.75 lakh crore, roughly three and a half times the actual realization of the last fiscal year. Fitch believes that political support for the legislative changes to the law required to get the sale going could be a major drag on the government. There could also be more resistance on this occasion from unions who will oppose the removal of state property from the safety net,” he said in a statement. And the PSB’s also need to have a good amount of interest from the investors to run the large stakes.

From the recent social media reports it has been said that the government is going to privatize small and medium-sized state-owned banks and flitch believes that India is privatizing the large-sized banks to increase the investment inflow, which a good plan for the economy” However, this is not easy, because although banks in this large-sized category have extensive influence”. For banks that are currently taking immediate corrective measures by the Reserve Bank of India, investor interest may be particularly limited and limited by the continued growth of loans to the most successful borrowers and the expansion of branches.

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