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RBI UNVEILS FRAMEWORK FOR RETAIL PAYMENTS ENTITY

Focus: GS-III Indian Economy

Why in news?

The Finance Ministry is working to expedite the sale of stakes in four state-owned banks — IDBI Bank, Bank of Maharashtra, Punjab & Sind Bank and UCO Bank — with the aim of completing the disinvestment process in the current fiscal.

Details

  • The government is looking to divest its stakes in multiple public sector companies at a time when its finances have taken a hit from significant shortfalls in tax revenue amid the economic fallout of the COVID-19 pandemic.
  • The four banks: IDBI Bank, Bank of Maharashtra, Punjab & Sind Bank and UCO Bank, were the only prospects currently being considered for divestment in the banking sector.

‘Strategic sectors’

  • The Centre’s Aatmanirbhar Bharat Abhiyan announced as a stimulus package in the wake of the pandemic, had promised a new Public Sector Enterprise Policy that would notify specific strategic sectors in which no more than four PSU players would be allowed, with the rest being privatized, merged or brought under holding companies.
  • The Chief Economic Advisor asserted that banking would be categorised as a strategic sector, meaning that apart from four public sector banks, all others would have to be privatised or merged.

The Economic Survey 2020 on Govt. Divestment in PSUs

  • The Economic Survey 2020 has aggressively pitched for divestment in PSUs by proposing a separate corporate entity wherein the government’s stake can be transferred and divested over a period of time.
  • The performance of privatized firms, after controlling for other confounding factors using the difference in the performance of peer firms over the same period, improves significantly the following privatization.
  • Further, the survey has said privatized entities have performed better than their peers in terms of net worth, profit, return on equity and sales, among others.

-Source: The Hindu, Economic Times

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October 2022
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