Welcome Move on Privatising Banks

Context: The privatization of banks as the government's stated policy objective of reducing the number of State-owned enterprises to four is a welcome step.

Arguments favouring privatisation:

• Non-Performing Assets(NPA): has been a bane of Indian banks with public sector banks having double-digit growth in NPAs.

• International Examples: Barring Chinese banks, all the big banks of the world are privately owned. 

• Insulates Taxpayer: as most of the taxpayer’s money is billed for cleaning up the mess of a bank failure.

Way Forward:

• Global Covenants: on strengthening systematically important banks raising the capital requirements and further stress on supervision have kicked in after the Global Financial Crisis. 

• India should head to global precedents.

• Legal Framework for resolution of financial institutions: To truly insulate the taxpayer from the bill for cleaning up the mess of a bank failure and identify the sources of capital that can be bailed-in.