Raghuram Rajan says privatisation is a blunder; Rajnish Kumar cites failures in private banks, BFSI News, ET BFSI

As the government speeds up on privatisation of public sector entities, industry mavens are not sure about the move. Former RBI chairman Raghuram Rajan spoke against privatisation while Rajnish Kumar former chairman of SBI has said that there are failures in private banks as well.

The government has made it clear that it doesn’t want to have more than five entities in any business. That’s a strategic decision that the government has taken recently. But the government has been talking about reducing its stake in PSBs for a long time. It merged 10 PSBs into 4. There are many recommendations for the government to reduce its stake in banks to only 51%. The idea is this will give enough funds to the government and the banks will also become more professionalised. But while the government is thinking of divesting its stake, Raghuram Rajan believes that it has not benefited the developed countries like the US.

“Time has come to recognise the crucial sectors of the country to be preserved. The Indian government is trying hard to sell the public sector banks to corporate hands which is a grave concern for an economy like India. Time is to understand Privatization is a blunder,” Raghuram Rajan, former Governor RBI and IMF Chief Economist, tweeted.

Rajan was replying to US President Joe Biden’s tweet on the divestment of government companies.

The developed countries like the US too are finding it difficult to create jobs after disinvesting heavily. Biden tweeted about his focus on creating government jobs.

“After decades of disinvestment, our roads, bridges, and water systems are crumbling. We must pass the American Jobs Plan. Together, we will rebuild our country’s infrastructure and create millions of good-paying union jobs in the process,”

This is not the first time Rajan made his viewpoint clear on privatisation. In an interview with PTI in March, he said, “I think it would be a colossal mistake to sell the banks to industrial houses. It will also be politically infeasible to sell any decent-sized bank to foreign banks,”

Bank employees’ associations and federations are already opposing the bank privatisation decision and held the 3-4 day strike very recently.

In an interaction with ETBFSI, Rajnish Kumar, former Chairman of SBI presented a different view to this discussion. He said if the government’s agenda is to bring governance then the government should change the ownership. “If the government wants to improve only the governance they can shift the ownership of the PSBs to RBI. And the issue would have been resolved. RBI would become the sole regulator and banks would achieve similar results,” said Kumar.

He also added, “The major issue is how long should the government capitalise the PSBs. And the government’s policy is also that it doesn’t want more than four entities in non-strategic sectors. There can be a question whether private banks perform better? But there is not an easy answer to this because there are failures in private banks as well.”