The Reserve Bank of India today issued a clarification with respect to a paper released on Thursday on privatisation of public sector banks.

The paper titled ‘Privatisation of Public Sector Banks: An Alternate Perspective’ was authored by researchers of RBI.

“This is regarding reports in certain sections of the media stating that the RBI is against privatisation of Public Sector Banks (PSBs),” the central bank said in a release today.

In this regard, RBI clarified that the views expressed in the article are those of the authors and do not represent the views of RBI. It also highlighted the statement wherein it was mentioned that a gradual approach by the government to privatise these banks can ensure that a void is not created in fulfilling the social objective of financial inclusion and monetary transmission.

The paper had said that while from a conventional perspective, privatisation is a panacea for all ills, economic thinking has come a long way to acknowledge that a more nuanced approach is required while pursuing it.

The recent mega merger of public sector banks has resulted in consolidation of the sector, creating stronger and more robust and competitive banks. A “big bang approach” of privatisation of these banks may do more harm than good, it said.

Gradual approach

Thus, the researchers are of the view that instead, a gradual approach as announced by the government would result in better outcomes, RBI said today, reiterating that the government has already announced its intention to privatise two banks.

With effect from April 2020, the government had merged 10 public sector banks into four. Herein, Oriental Bank of Commerce and United Bank of India were merged into Punjab National Bank, Andhra Bank and Corporation Bank into Union Bank of India, Syndicate Bank was merged with Canara Bank, and Allahabad Bank with Indian Bank.

This was the third round of consolidation among state-owned banks. Prior to that, the government had merged associate banks and Bharatiya Mahila Bank into State Bank of India, and later Vijaya Bank and Dena Bank with Bank of Baroda.

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