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EXCLUSIVE-India shortlists four banks for potential privatisation - sources

Mon 15th February, 2021 11:25am
By Manoj Kumar, Aftab Ahmed and Swati Bhat
    NEW DELHI/MUMBAI, Feb 15 (Reuters) - India's government has
shortlisted four mid-sized state-run banks for privatisation,
under a new push to sell state assets and shore up government
revenues, three government sources said.
    Privatisation of the banking sector, which is dominated by
state-run behemoths with hundreds of thousands of employees, is
politically risky because it could put jobs at risk but Prime
Minister Narendra Modi's administration aims to make a start
with second-tier banks.
    The four banks on the shortlist are Bank of Maharashtra
 BMBK.NS , Bank of India  BOI.NS , Indian Overseas Bank
 IOBK.NS  and the Central Bank of India  CBI.NS , two officials
told Reuters on condition of anonymity as the matter is not yet
    Two of those banks will be selected for sale in the
2021/2022 financial year which begins in April, the officials
said. The shortlist has not previously been reported. 
    The government is considering mid-sized to small banks for
its first round of privatisation to test the waters. In the
coming years it could also look at some of the country's bigger
banks, the officials said.
    The government, however, will continue to hold a majority
stake in India's largest lender State Bank of India  SBI.NS ,
which is seen as a 'strategic bank' for implementing initiatives
such as expanding rural credit.
    A finance ministry spokesman declined to comment on the
    India's deepest economic contraction on record caused by the
pandemic is driving the push for bolder reforms, economists say.
    New Delhi also wants to overhaul a banking sector reeling
under a heavy load of non-performing assets, which are likely to
rise further once banks are allowed to categorise loans that
soured during the pandemic as bad.
    Modi's office initially wanted four banks to be put up for
sale in the coming fiscal year, but officials have advised
caution fearing resistance from unions representing the
    Bank of India has a workforce of about 50,000 and Central
Bank of India has 33,000 staff, while Indian Overseas Bank
employs 26,000 and Bank of Maharashtra has about 13,000
employees, according to estimates from bank unions. 
    Bank of Maharashtra's smaller workforce could make it easier
to privatise and therefore potentially one of the first to be
sold, the sources said.
    On Monday workers started a two-day strike opposing the
government's move to privatise banks and sell stakes in
insurance and other companies. 
    The actual privatisation process may take 5-6 months to
start, one of the government sources said.
    "Factors like number of employees, pressure of the trade
unions and political repercussions would impact a final
decision," the source said, noting that the privatisation of a
particular bank could be subject to change at the last moment
due to these factors.   
    The government hopes that the Reserve Bank of India, the
country's banking regulator, will soon ease lending restrictions
on Indian Overseas Bank after an improvement in the lender's
finances that could help its sale. 
    Some economists said there could be a few takers for weak
and small banks - saddled with bad assets - but that Modi should
consider the sale of bigger banks like Punjab National Bank or
Bank of Baroda. The sale of small banks was unlikely to help the
government raise much in the way of resources for budget
spending, they said. 
    "The government should consider what gives it a better
pricing without compromising its long-term goal of financing the
growing Indian economy," said Devendra Pant, chief economist at
India Ratings, the Indian arm of Fitch ratings agency. 

($1 = 72.8125 Indian rupees)

 (Reporting by Manoj Kumar, Swati Bhat and Aftab Ahmed; Editing
by Sanjeev Miglani and Susan Fenton)
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