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BJP favours dilution of stake in PSU banks

Sep 10, 1999

The Bhartiya Janta Party (BJP) led National Democratic Alliance (NDA) has announced that, if voted back to power, it would reduce the government's stake in public sector banks to below 51%. Moreover, according to newspaper reports, the BJP has also stated that the government would give autonomy to the boards these banks. The Indian banking industry is characterised by its fractured nature and government ownership. As a result of this, there exist a large number of marginal and inefficient banks, which over time can pose a threat to the economic framework of the country. Moreover, with the government holding a majority stake in most banks (the PSU banks), there is little talk of reform or increased efficiency.

In the first phase of reforms, initiated in FY92, the banking sector was thrown open for competition from private players. Also, the existing foreign players were permitted to expand their branch network within the country. However, the public sector banks, which account for a large chunk of the aggregate loans and deposits, witnessed little or no reform. This resulted in broadening of the technological and service gap between the private sector and public sector banks.

The government ownership of public sector banks continues to be a major deterrent when it comes to taking fresh initiatives to improve efficiency and profits of PSU banks. The main reasons that these banks are unable to bridge the gap are the inability to rationalise workforce and the compulsion to pursue populist measures as part of the government's plan. The BJP's move, if implemented, to provide autonomy to PSU banks will dilute these drawbacks and help in the creation of a more vibrant banking sector.

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