SBI Research Suggests Government Should Plan for Selling Public Sector Banks

New Delhi, India – SBI Research has recommended that the Indian government should create a clear plan for selling public sector banks (PSBs) to attract more investment and confidence. In a comprehensive report released ahead of the 2024-25 Budget, the first under Modi 3.0, SBI Research emphasized the need for a concrete roadmap for divestment.

Disinvestment, or divestment, refers to the sale of a government-owned enterprise, either partially or fully. The report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, expects the government to clarify the possible stake sale by LIC and the Centre in IDBI Bank during the upcoming Budget. The government and Life Insurance Corporation of India are selling an almost 61% stake in IDBI Bank, with bids invited from buyers in October 2022 and several expressions of interest received by January 2023.

The report suggests that the roadmap ahead could include reducing ownership stakes in PSU banks, granting greater HR autonomy, further investments in digital and IT infrastructure, and aligning the priority sector lending (PSL) framework with current priorities. It also recommends that divestment targets be more realistic, given the maturity of the Indian banking system, and calls for increased collaboration with global peers.

In the interim budget tabled in February this year, the 2023-24 divestment estimate was revised downward to Rs 30,000 crore from the previously budgeted Rs 51,000 crore. The target for 2024-25 has been set at Rs 50,000 crore.

According to a recent CareEdge Ratings report, there is a total divestment potential of approximately Rs 11.5 trillion at current market capitalization, assuming the government retains control over the company’s governance by maintaining at least a 51% stake in these public undertaking companies and divests any excess shares. Of this Rs 11.5 trillion divestment potential, public sector enterprises could contribute around Rs 5 trillion, while public sector banks and insurance firms could potentially add another Rs 6.5 trillion. CareEdge believes that the government will maintain its divestment target at Rs 50,000 crore in the upcoming budget.