Viral Acharya pitches for privatisation of healthier PSU Banks; warns against stake sale at discounted prices

On Friday, government think tank NITI Aayog had also proposed privatising Punjab & Sind Bank, UCO Bank and Bank of Maharashtra.

Former RBI Deputy Governor Viral Acharya has pitched for privatisation of healthy PSU Banks, a day after RBI proposed dilution of the center’s stake in state-owned lenders to 26%. “In my opinion, the divestments are a first step … divestment beyond majority stake, because they will help relax the fiscal constraint,” he said, adding that the government must also look into privatisation of some of the healthiest public sector banks and relatively healthier public sector banks, The Indian Express reported. On Friday, government think tank NITI Aayog had also proposed privatising Punjab & Sind Bank, UCO Bank and Bank of Maharashtra, in a recommendation to Prime Minister’s Office (PMO) and union finance ministry functionaries.

Viral Acharya, who is now Professor of Finance, New York University Stern School of Business, however also warned against the privatisation of PSU Banks at discounted prices. Citing the example of the South Asian crisis in 1997, Viral Acharya said that many state-owned lenders were sold at low prices to private equity investors from foreign nations as they needed to be privatised. “I am visualising that we should not end up in this scenario. In my view, it would be better to actually divest stakes in a graceful manner at right prices…,” he said. Recounting the merits of divestment, Viral Acharya added that disinvestment will bring relaxation of the fiscal constraint, will bring with them modern technology, fintech capacity, modern credit scoring capacity, and risk management capacity.  

After launching his book ‘Quest for Restoring Financial Stability in India’, Viral Acharya said that earlier, Narasimham committee had also said that the government stake in PSBs should be slashed to 30% and there should be mergers designed between banks where there is complementarity. “So there is room for branch consolidation and reducing your overhead costs. There is dual control between the government and the RBI of the public sector banks needs to be unavailable,” he said, adding that the issues were flagged even before the recent recognition of variables of non-performing assets (NPAs).