Reacting to a recent article on privatising public sector banks, the Reserve Bank of India (RBI) today clarified that adopting a “big bang" approach to privatisation of PSBs would do more harm than good. The RBI said that it was rather batting for a more gradual withdrawal of state control.
"This is regarding reports in certain sections of the media stating that the RBI is against privatisation of public sector banks (PSBs)," the central bank said.
The article titled “Privatisation of Public Sector Banks: An Alternate Perspective" published in the August 2022 issue of the RBI bulletin is authored by researchers of RBI, the central bank said.
In this regard, the RBI clarified that first of all, as clearly stated in the article, the views expressed in the article were those of the authors and do not represent the views of the RBI.
Second, the press release relating to the August 2022 bulletin highlights that "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".
Third, the concluding paragraph of the article, inter-alia, mentions that:
Then, "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."
Finally, the "recent mega-merger of PSBs has resulted in the consolidation of the sector, creating stronger and more robust and competitive banks", the RBI expained, adding, "A big bang approach of privatisation of these banks may do more harm than good. The government has already announced its intention to privatize two banks. Such a gradual approach would ensure that large-scale privatisation does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission."
Thus, the RBI said, the researchers are of the view that instead of a big bang approach, a gradual approach as announced by the government would result in better outcomes.