RBI clarifies that it is not against privatization of public sector banks

• India’s central bank has come out with a clarification denying that it is against privatization of public sector banks.
  
• This comes a day after media reports implied that the central bank was opposed to this policy.
  
• The government has already announced its intention to privatize the Central Bank of India and Indian Overseas Bank.
  

The Reserve Bank of India today clarified that it is not against privatization of public sector banks, after reports yesterday stated that the central bank is of the view that rapid privatization does more harm than good.

While the RBI did not specifically deny the reports outright, the clarification seems to be a result of the implication that reports have drawn from the RBI research team’s article in its monthly bulletin.

“The researchers are of the view that instead of a big bang approach, a gradual approach as announced by the Government would result in better outcomes,” said a statement by the RBI.

The two public sectors which could be privatized are the Central Bank of India and Indian Overseas Bank.

Earlier yesterday, media reports quoted the research team’s article, saying, “Privatisation is not a new concept, and its pros and cons are well known. From the conventional perspective that 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 article was penned by Snehal S Herwadkar, Sonali Goel and Rishuka Bansal of the banking research division, department of economic and policy research, RBI.

On the other hand, the National Council of Applied Economic Research (NCAER) said that all public sector banks, except the State Bank of India, should be privatized.

“In principle, the case for privatization we have made applies to all PSBs including SBI. But we recognize that within the Indian economic framework and political ethos, no government will want to be without a single PSB in its portfolio. Keeping this in view, the goal, whether stated explicitly or left implicit, should be to privatise all PSBs other than SBI,” the NCAER policy paper, authored by Poonam Gupta, director, NCAER, and Arvind Panagariya, former Niti Aayog vice chairman, said.

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