Bank of India, Central Bank of India, Indian Overseas Bank, and Bank of Maharashtra rally by over 19% on hopes of privatisation

Bank of India, Central Bank of India, Indian Overseas Bank, and Bank of Maharashtra rally by over 19% on hopes of privatisation
Central Bank of India, Bank of India, Indian Overseas Bank and Bank of Maharashtra have reportedly been shortlisted for disinvestment in the fiscal year 2021-22 by the Indian governmentBCCL/BI India
  • Public sector banking stocks are running in the green with Bank of Maharashtra leading the rally.
  • This jump in stock prices comes after a report by Reuters revealed that Bank of Maharashtra, Indian Overseas Bank, Bank of India and Central Bank of India have been shortlisted for privatisation.
  • However, banking unions are not happy about the move and plan to go on a two-day strike in March.
The Indian government has reportedly shortlisted four banks that could possibly be up for privatisation. Bank of Maharashtra, Bank of India, Indian Overseas Bank and Central Bank are on the docket for privatisation, according to Reuters. But, the Indian government is yet to finalise which two of these four will be selected for disinvestment in the financial year 2021-22.

While the government has not commented on this development, the four shortlisted banks are leading the rally in public sector banking stocks.

As markets closed for the day, Bank of India’s share price was up by a massive 19.81% followed by Bank of Maharashtra's stock jumping 19.81%.

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BankShare price gains on Feb 16
Bank of Maharashtra19.81%
Indian Overseas Bank19.63%
Central Bank of India19.71%
Bank of India19.97%
Source: NSE as of 12:15 pm

The Modi administration is pushing to sell assets in order to shore up government revenue after massive public expenditure during the COVID-19 pandemic.

But, banking unions in the country aren’t on board with the plan to sell public sector assets to private players — especially, within the banking industry.

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Two-day bank strike scheduled for March
The All India Bank Officers’ Confederation has called for protests starting February 19, which will culminate into a two-day strike in March.

Bank strike schedule:
DatePlan
February 19Day-long protest in all state capitals
February 20 - March 10Relay protests in all states, districts and towns
March 15 - 16Two-day strike
Source: Strike notice

“The Government’s announcement to privatise our public sector banks is totally unfortunate and unwarranted. The need of the hour is to strengthen public sector Banks” said the strike notice.
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BankEmployees
Bank of India50,000
Central Bank of India33,000
Indian Overseas Bank26,000
Bank of Maharashtra13,000
Source: Bank union estimates

The plan for privatising India’s banks
For now, it’s only mid-sized and small banks which have been put up on the chopping block. Going forward, some of the bigger banks might also be put up for sale to the private sector, according to Reuters.

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India now has 12 public sector banks, down from 27 in 2017. Even so, they collectively contribute to around 60% of banking in the market.

Bank of India, Central Bank of India, Indian Overseas Bank, and Bank of Maharashtra rally by over 19% on hopes of privatisation
Banking industry market share between public sector, private sector and foreign banksRBI/BI India

The State Bank of India (SBI) is the only bank that will be spared from this pruning exercise. The government justifies that SBI is a ‘strategic bank’ — responsible for implementing public sector initiatives like expanding rural credit.

The banking unions argue that the same argument can also be made for other public sector banks. According to them, chemes like Jan Dhan Yojana and MUDRA have been successful because of public sector banks and their rigorous implementation.
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Even during the pandemic, the unions believed that they were integral in implementing measures that support the government’s impetus to provide liquidity and fiscal stimulus. “Privatising them means handing over the people’s money to private hands with vested interest,” the unions said during the post-budget reaction.

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