The State Bank of India (SBI) Research report has suggested that the central government needs to take a stance on the disinvestment of public sector banks (PSBs) and provide a concrete roadmap for attracting capital and confidence in financial institutions (FIs). This report comes ahead of the full Budget for 2024-25, which will be presented on July 23, marking the first Budget under Modi 3.0. The report, authored by Soumya Kanti Ghosh, the Group Chief Economic Adviser at SBI, highlights the importance of divestment, which refers to the sale, whether partial or full, of a government-owned enterprise.
One of the key points raised in the SBI Research report is the possible stake sale by Life Insurance Corporation of India (LIC) and the Centre in IDBI Bank. The government and LIC are looking to sell nearly 61% stake in IDBI Bank, with several potential buyers showing interest. This suggests a changing landscape for PSBs under ongoing reforms, including reducing ownership stake, providing greater HR autonomy, investing in digital and IT infrastructure, and aligning the priority sector lending (PSL) framework with national priorities. The report emphasizes the need for realistic divestment targets and increased collaboration with global peers to bolster the Indian banking system.
The interim budget presented in February this year revised the divestment estimate for 2023-24 to Rs 30,000 crore from Rs 51,000 crore initially budgeted. Additionally, the target for 2024-25 has been set at Rs 50,000 crore. A recent report by CareEdge Ratings highlights the total divestment potential in the market, estimating it to be around Rs 11.5 trillion, assuming the government maintains at least a 51% stake in public undertaking companies. Public sector enterprises are expected to contribute around Rs 5 trillion, while public sector banks and insurance firms could potentially add another Rs 6.5 trillion to this divestment potential.
Going forward, it is believed that the government will maintain its divestment target at Rs 50,000 crore in the upcoming budget to be presented on July 23. The report suggests that with the changing landscape in the banking sector and the need for increased capital and confidence, it is imperative for the government to outline a clear roadmap for divestment in PSBs. This would not only attract much-needed investments but also align the banking system with global standards and best practices, ultimately benefiting the economy as a whole. With the right approach and collaboration with international peers, the Indian banking sector could see significant growth and stability in the years to come.
