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Divestment of 6 PSBs: Privatising Profit? Blow to Employees & Customers?

As the government considers divesting 5 to 10 percent of its holdings in six Public Sector Banks (PSBs). Unions, employees and customers register their concerns against the move.

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Author: Abhivad

Published: November 17, 2023

The Government of India is reportedly considering divesting 5 to 10 percent of its holdings in six Public Sector Banks (PSBs) where it currently holds over 80 percent equity. This move is seen as an attempt to capitalise on the recent surge in the share prices of PSBs, following the improved performance recorded in the second quarter of financial year 2024(Q2FY24). These reports have raised concerns among employees and unions, who fear that it could eventually lead to changes in work culture, job losses, and increased contractualisation.

Which PSBs are Involved?
The six banks that could be affected by the divestment plan are Bank of India, Indian Overseas Bank, Punjab & Sind Bank, Bank of Maharashtra, Central Bank of India, and UCO Bank. However, four of these banks have seen significant improvement in their financial performance in the last quarter. Only Punjab & Sind Bank and UCO Bank among these have shown a dip in net profit in quarter 2 of financial year 2024(Q2FY24) as compared to quarter 2 of financial year 2023(Q2FY23).

Source for Rise in Net Profit: Mint Report 
Source for Govt. Shareholding: BSE Limited

Govt's Plan To Capitalise on Rise in Share Value
Despite their improved financial performance, the government is moving ahead with their plan to increase private investment in PSBs. These PSBs witnessed a substantial surge in profits in Q2FY24, with their combined net profit soaring 31 percent to ₹33,643 crore compared to ₹25,684 crore recorded in the same period of the previous fiscal year. This robust performance extended to the first half of FY24, as the 12 PSU lenders collectively posted a net profit of ₹68,061 crore, representing an impressive 66 percent increase over H1FY23's net profit of ₹40,991 crore.

Meanwhile, Union Finance Minister Nirmala Sitharaman has been reiterating her government's commitment to privatise PSBs and other Public Sector Enterprises which do not fall under strategic sector as classified by the government. 

The government's plan to divest 5 to 10 percent of its holdings in these six PSBs is part of its broader strategy to reduce its ownership in state-owned enterprises. According to The Economic Times report, this move aims to capitalise on the recent increase in the share prices of PSBs following the improved asset quality. The Nifty PSU Bank index has risen 34 percent this year, compared to 6.9 percent for the Nifty Private Bank index. Nifty PSU Bank hit a 52 week high in September, jumping over 10 percent in the month alone.

Employees' Unions and Customers Apprehend
The central trade unions have been opposing the government's plan to divest public sector undertakings, arguing that it will lead to job losses and weaken the public sector banking system. 

All India Bank Employees Association(AIBEA) National Joint Secretary Devidas Tuljapurkar said “5 to 10 percent divestment in shares won’t change the ownership of these banks, but given the direction the government is moving forward, they ultimately want to privatise everything”. He also added that “the government will start with selling small percent of shares and end up selling off the entire banking system to the private players, similar to what happened in the case of IDBI. It was first corporatised, then shares were sold to LIC. The government claims technically the bank remains in the public sector, but the whole business model changed”- the former Bank of Maharashtra employee turned union leader registered his concern.  

While speaking to Kanal, Tamil Nadu State Convener of United Forum for Bank Unions(UFBU) G Kripakaran said the combined employee strength of the six PSBs is estimated to be around 5,00,000. “The government’s move would adversely impact work culture in these banks. With the increase in private investment, the chances are more that the banks start revolving around profit, moving away from the service aspect. Therefore, it would mount performance pressure and deadlines to meet targets on employees as well”- he said.

Kripakaran also added that the issue should not be viewed as one that concerns employees alone. “This would impact the quality of service and service charges would shoot up., Therefore, it is a matter of concern for common people who depend on these banks as well”- he added. 

Jinu,(name changed) a Kerala government employee who has lended a housing loan from the Bank of Maharashtra shared his thoughts with Kanal. “Increase in private investment would lower the credibility of the bank. I lended from this bank thinking it is a completely government owned enterprise. I don’t know much about how exactly this sale of stakes would impact terms of my lending, but I don’t see private involvement as a positive sign”- he told this reporter.

Tags:bankingPSBsPSBPublicSectorBanksPrivatisationCentralBankOfIndiaUCOBankOfIndiaBankOfMaharashtraPunjabSindBankdisinvestmentdivestment