In a move that can potentially make the bank privatisation program more desirable for investors, the Centre has lifted an embargo that had barred most private players from undertaking profitable government-connected banking transactions. These transactions consist of taxes and other income payment facilities, pension payments and tiny savings schemes.
Until now, such transactions have been largely a preserve of the public sector banks (PSBs), and only a couple of private players (HDFC Bank, Axis Bank and J&K Bank) have been permitted to conduct them, a supply told FE.
The government has conveyed its selection to the Reserve Bank of India (RBI). Since the embargo is lifted, there is no bar now on the RBI to authorise private banks (in addition to the PSBs) for conducting government organizations, like government agency enterprise, the finance ministry stated on Wednesday.
“This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services,” the ministry stated in a release.
However, some public sector bankers worry a loss of organizations to private competitors and sought a level-playing field. “If certain privileges are shared with private banks, so should be the social responsibilities that have proved to be costly for us,” stated a senior public sector banker on situation of anonymity.
“Will we be allowed to pursue profits alone, forgetting socio-economic goals? If yes, this is a welcome move,” stated an additional public sector banker. The Centre ought to cost-free state-run banks from their implied obligation of getting to push by way of several government schemes for economic inclusions, like the opening of no-frills Jan Dhan accounts and setting up of branches or ATM networks in remote places, as these have bled the PSBs for years, he stated.
For instance, of the 41.84 crore Jan Dhan accounts opened so far, private banks accounted for just 1.25 crore, he pointed out. These accounts do not demand the holders to make certain a minimum balance, so they stay an unattractive proposition for private banks.
However, some analysts say the move will force the PSBs, in particular these with poor track records of dealing with prospects, to mend their approaches and shed complacency.
For its portion, the finance ministry stated: “Private sector banks, which are at the forefront of imbibing and implementing latest technology and innovation in banking, will now be equal partners in development of the Indian economy and in furthering the social sector initiatives of the government.” In the Budget for FY22, the government has proposed to privatise two state-run banks.