(MENAFN- Trend News Agency)
Big bang privatisation of public sector banks can do more harm
than good, an RBI article has warned asking the government to take
a nuanced approach on the issue, Trend reports citing The Tribune
While private sector banks are more efficient in profit
maximisation, their public sector counterparts have done better in
promoting financial inclusion, the article in the latest RBI
“Privatisation is not a new concept, and its pros and cons are
well known. From the conventional perspective that privatisation is
a panacea for all ills, the economic thinking has come a long way
to acknowledge that a more nuanced approach is required while
pursuing it,” it said.
The gradual approach to privatisation adopted by the government
can ensure that a void is not created in fulfilling the social
objective of financial inclusion and monetary transmission, it
Quoting various studies, it said, PSBs (Public Sector Banks)
have played a key role in catalysing financial investments in
low-carbon industries, thereby promoting green transition in
countries such as Brazil, China, Germany, Japan, and in the
Evidence suggests that public sector banks are not entirely
guided by the profit maximisation goal alone and have integrated
the desirable financial inclusion goals in their objective function
unlike private sector banks, it said.
“Our results also point out the countercyclical role of PSB
lending. In the recent years, these banks have also gained greater
market confidence. Despite the criticism of weak balance sheets,
data suggests that they weathered the Covid pandemic shock
remarkably well,” it said.
Recent mega merger of PSBs has resulted in consolidation of the
sector, creating stronger and more robust and competitive
In 2020, the government merged 10 nationalised banks into four
large lenders, thereby bringing down the number of PSBs to 12.
There were 27 state-run lenders in 2017.
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