impact of privatization on indian banking

IMPACT OF PRIVATIZATION

ON INDIAN BANKING

SBI enjoys a monopoly of the government business. SBI was formed under the SBI Act in 1955. The

government hold around 93% of the equity, leaving 7% to private ownership. By this act the equity of RBI cannot be diluted below 55%.

This act was outdated and needs to be re-addressed. However, efforts were initiated by SBI to privatize its non – banking subsidiaries like SBI Caps, SBI Funds Management etc, where SBI’s holding is about 85% of the equity.

Later Indian government announced its decision to reduce its stakes in public sector banks to 33%.

Are the banks really sick? The answer is No. Public sector banks are making profits. Even the loss-making banks like UCO bank have turned the corner in recent years. Then why this outcry of privatization.

Why…… Need of Privatization??? In early 80s, the Banking Sector in India was

dominated by the public sector banks which were characterized by

High Intermediation Costs Over-staffing and Over-branching Huge portfolio of Non performing Loans Poor Customer Services Undercapitalized Poorly Managed / Narrow Product Range Undue Interference in Lending, Loan Recovery

& Personnel

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The bad loans are those which could not be repaid due to the vagaries of business cycle or due to natural calamities etc. There is no point in pursuing the recovery of such loans, as such borrowers do not repay. Such debts are written off record books and recorded as general expenditure and banks need not publish these. This clause has been exploited to the hilt by the Indian industrial and business class to conceal their loot of bank funds

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Many politicians and industrialists looted the banks. These loans are not to be monitored by the branch managers. What happens to these loans, who repays them, and ultimately who waives these payments

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Hindustan Photo Films — Rs. 395 crore Mangalore Chemicals and Fertilisers - Rs. 165

crore JK Synthetics — Rs. 87 crore Harshad Mehta — Rs.812 crore Hyderabad Allwyn — Rs. 85 crore HMT — Rs. 77 crore

Mission Statement of Privatization

Privatization is envisaged to foster competition, ensuring greater capital investment, competitiveness and modernisation, resulting in enhancement of employment and provision of improved quality of products and services to the consumers and reduction in the fiscal burden.

Rationale for Privatization

Reduction in fiscal deficitFiscal deficit reached a high of 8.5 percent of GDP in 1987-88. Loss making public sector enterprises were a burden .

Increase in the efficiency levelsEfficiency levels of public sector enterprises were low. Production costs of public enterprises were high as a result of political interference.

To foster competitionState owned units when sold to different parties would result in healthy competition in different sectors of the economy.

Broad basing of equity capital

Privatization would result in strengthening and deepening of capital market when some percentage of shares of public enterprises are sold to the public through stock exchange.

Releasing resources for physical and social infrastructure

More funds available for development projects.

Privatization of loss making enterprises would give govt. more fiscal space

So the need was felt to put some control over the activities of the Nationalize banks. Privatization of banks was one such action.

Although all political parties are committed to privatization, somehow there is no exhibition of pace. It is time to be taken in by a revolution called "Privatization of Ownership".

Private Sector Banks

ICICI Bank is India's largest private sector bank. The bank has a network of 1,308 branches and 3,950 ATMs as well as robust Internet banking. The Bank is present in 19 countries, including India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management.

Some other Private Sector Banks Bank of Punjab Bank of Rajasthan Catholic Syrian Bank Centurion Bank City Union Bank Dhanalakshmi Bank Development Credit Bank Federal Bank HDFC Bank ICICI Bank IDBI Bank

IndusInd Bank ING Vysya Bank Jammu & Kashmir Ban

k Karnataka Bank Karur Vysya Bank Laxmi Vilas Bank South Indian Bank United Western Bank UTI Bank (merged with

Axes bank)

BENEFITS OF PRIVATIZATION

Privatization Benefits

There was a great increase in the no. of bank branches after privatization from 8262 to 45,898.

Branches in rural/semi-urban sectors increases from 2% to 40% after privatization.

Credit to agriculture increases from Rs.162 crore to Rs.4,46,496 crore.

o More job opportunities raise after privatization which leads to increase in staff from 2,20,000 to 9,65,720.

Because of credit misallocation, public sector banks may be a bigger threat to stability than private banks.

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Private sector bank loans growth is faster as compared to public sector banks.

There was a great increase in the efficiency of the private banks as the control over bank employees increases.

Private sector banks provide many additional services to its customers.

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Adverse Impacts of privatization

on Indian Banking

Adverse Impacts Continued

Interest rate is more in private sector banks as comparative to the public sector banks.

private banks are responsible for this recession in the world & also in india.

Fact is this:- Private banks give loans to the

real estate sector and many other similar sectors with the eyes closed not taking even some proper securities by these companies.

Fact Continued

And these companies put this money in the stock exchange and when the rates of this wealth go down, and they could not return money the banks. So banks could not recover their money which is gives as a loan and bear a loss in terms of business of the bank, which effect the market very badly. Their procedures and systems are also not so good.

There is less job security in case of private banks.

Interference and manipulation by the politician and industrialist is in full swing. In some cases, bank loans were used to garner votes.

Previously the public money was safeguard through Deposit Insurance corporation but now this corporation is abolished.

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Since now in the private banks government has less control over the bank activities , Private sector use private recovering agencies to recover bad loans.

These agencies uses wrong means and force to recover loans from people .

Some people even commit suicide under the pressure of the recovery agents.

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The employees of Private sector banks are not pretty satisfied with the policies of the private banks. As the working hours are more and the salaries are less. That’s why more than 800,000 PSU bank employees recently protest against privatization.

Conclusion There is nothing bad with the public sector banks, the

difference is in the policies. Because of loopholes in the policies people uses banks for their personal cause. Private sector banks boost the Indian economy as their efficiency is much more than the Public sector banks. But there is still a long road for privatization. Private banks are still have to cover rural sector which contribute large in the growth of India.