Need to privatise PSBs to fight bad banks: RBI Deputy Governor, Viral Acharya

At an event of the Federation of Indian Chamber of Commerce and Industry, RBI deputy governor, Viral Acharya, said that in order to prevent the drain of money in the event of bad banks disguising as recapitalisation, there may be a need to reprivatise some nationalised banks in India.

The deputy governor went on to state the five remedies to the bad bank problem in the economy. Acharya suggested that the banks must be allowed to raise capital privately, along with asset sales, mergers, strict corrective action and divestment. Pointing at probable mergers of PSUs in the banking sector, the deputy governor stated that the system is better off, if the banks are 'consolidated into fewer but healthier banks', as the consolidation would also facilitate capital injection in the bad banks. Further adding that, such consolidation and privatisation will crack down on underperforming leaders of certain Bank PSUs, in order to rejig the prompt corrective actions.    

A number of banks were privatised in the year 1969 and 1980 in order to fulfil the government's socialist agenda, aimed at vast financial inclusion in the country. However, the target remained underachieved, and the PSBs are burdened with a burgeoning total of Rs 10-14 crore of stressed assets.

On April 1, 2017, SBI merged five associate banks with itself; whereas, the Finance Minister in a statement expressed the government's inclination to privatise IDBI Bank.