Synopsis: Top bankers at a CII event in Kolkata emphasized the current strength of Indian banks, making this an ideal time for the government to consider disinvestment. With low non-performing assets (NPAs) and a solid capital base, banks with government stakes exceeding 75% could be prime candidates for this process. The banking sector is better positioned than ever, presenting an opportune moment for the government to act.
At a recent CII event in Kolkata, prominent bankers suggested that the robust health of Indian banks has created an ideal environment for the government to initiate the long-discussed disinvestment process.
With historically low levels of non-performing assets (NPAs) and a solid capital adequacy ratio, the banking sector is well-positioned to attract favourable valuations from investors.
A Strong Financial Foundation:
The discussion highlighted that the Indian banking sector, particularly public sector banks (PSBs), is currently experiencing a phase of unprecedented financial stability.
The net NPA ratio has fallen to a multi-year low of 0.6%, while the capital adequacy ratio of public sector banks stands at a comfortable 15.53% as of March.
This combination of strong fundamentals makes it a potentially profitable time for the government to reduce its stake in certain banks.
Veterans in the sector, including Ashwani Kumar, Managing Director of UCO Bank, underscored that banks where the government holds more than 75% ownership could be the primary candidates for disinvestment.
This would align with the Securities and Exchange Board of India’s (SEBI) rule mandating a minimum public shareholding of 25%.
Kumar pointed out that in several cases, the government holds more than 90% equity in these banks, making disinvestment a strategic move to comply with regulatory norms while also unlocking value.
"This is the right time for disinvestment... The government holds more than 90% in several banks," said Kumar, addressing the colloquium.
Disinvestment: A Strategic Move
Former State Bank of India Chairman Rajnish Kumar added that while disinvestment is not without challenges, it is an inevitable step that the government must eventually take.
He acknowledged that timing is critical, and the current health of the banking sector makes this an opportune moment.
The government’s ongoing reform agenda, which has been in place for the last seven years, has bolstered the stability of public sector banks, making them more competitive and resilient.
Hardik Mukesh Sheth, Director at the Department of Financial Services, emphasized the importance of continuing this momentum.
He noted that one of the government’s key goals is to increase the bank credit-to-GDP ratio, currently at 56%, to levels seen in advanced economies, where this figure is closer to 100%.
Technology Investment and Reform:
Another important aspect discussed at the event was the role of technology in the modernization of Indian banks.
Sheth highlighted that public sector banks are now allocating 6-8% of their total expenditure to technological advancements, including cybersecurity measures.
In the last three financial years alone, public sector banks have spent approximately Rs. 47,000 crore on upgrading their infrastructure and investing in new technologies to ensure they remain competitive and secure.
The sustained investment in technology is part of the broader reform efforts to enhance the overall efficiency and reach of public sector banks.
These reforms, combined with the low NPAs and a strong capital base, provide a favourable environment for disinvestment.
In conclusion, the current state of Indian banks—with low NPAs, strong capital ratios, and ongoing technological investment—presents a compelling case for the government to initiate the disinvestment process.
Reducing government stakes in banks where it holds more than 75% equity could not only unlock value but also align with regulatory requirements.
While the decision is not without challenges, the sector’s solid financial health provides a strong foundation for this strategic move, making now the right time to act.
Disclaimer: The opinions expressed in this article are for informational purposes only and should not be construed as investment advice. All investments are subject to market risks. Readers are advised to conduct their own research or consult with a financial expert before making any financial decisions related to bank disinvestment or other investment opportunities.
