Gradual approach to bank privatisation would result in better outcomes: RBI report – Times of India

MUMBAI: The Reserve Bank of India (RBI) on Friday issued a clarification on a report related to the privatisation of public sector banks, as published in the August 2022 issue of the RBI Bulletin, saying it does not represent the central bank’s views.
“This is regarding reports in certain sections of the media stating that the RBI is against privatisation of Public Sector Banks (PSBs). These media reports have cited an article titled “Privatisation of Public Sector Banks: An Alternate Perspective” published in the August 2022 issue of RBI Bulletin. The article is authored by researchers of RBI,” RBI said in a clarification.
“As clearly stated in the article itself, the views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India,” the RBI said.
The RBI clarified that 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”.
The article titled “Privatisation of Public Sector Banks: An Alternate Perspective” was published in the August 2022 issue of the RBI Bulletin. The article is prepared by Snehal Herwadkar, Sonali Goel, and Rishuka Bansal of the banking research division, Department of Economic and Policy Research researchers of the RBI.
The concluding paragraph of the article, inter-alia, mentions that: “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.”
“Recent mega merger of PSBs has resulted in consolidation of the sector, creating stronger and more robust and competitive banks,” it said.
The RBI researchers noted in the report that “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 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, the RBI said in the clarification note.
Public Sector Banks (PSBs) account for the highest share of bank branches in rural areas, followed by semi-urban areas, in adherence to their commitment to the financial inclusion objective.

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