Privatisation of healthier PSBs should be on table: Viral Acharya

A day after the central bank limited the Centre’s stakes in public sector banks (PSBs) to 26 per cent, former Deputy Governor of RBI Viral Acharya proposed the division and privatization of even healthy PSBs.

“In my opinion, divestment is a first step … division beyond the majority stake, as they will help calm the fiscal blockade,” he said, adding that “perhaps the privatization of some of the healthiest public sector banks – relatively healthy Public sector banks – should also be on the table. ”

Acharya, now a professor of finance, New York University Stern School of Business, said that the Narasimham committee had actually said that government stake in public sector banks should be brought to 30 percent and designed merger merger between banks. Should be where there is complementarity. Reserve Bank of India (RBI) officials, in a presentation before Prime Minister Narendra Modi, proposed cutting government stake in PSU banks by 26 per cent and a longer tenure for PSB heads.

“So there is room for branch consolidation and reducing your overhead costs. Double control is not available between the government and the public sector banks RBI. I think these were indeed issues that had already been recognized by the most recent variable of non-performing assets, “Acharya said after launching his book ‘Quest for Restoring Financial Stability in India’.

Referring to the South East Asian crisis, he said that a large number of banks – public sector banks – had to be privatized in these Southeast Asian countries in 1997-98 amid external and financial crisis in these countries. “These banks were to be sold at the fire sale price. In many cases, they were actually sold to private equity investors from abroad as the only money ready to buy these banks, ”said Acharya.

He said that India should not end in this scenario and it would be better to actually split the bets at a fair price. The right price for a relatively healthy PSB will be attractive by various constraints. “would benefit. In my view, they will not just be exempt from fiscal constraint. I think they will bring with them modern technology, fintech capability, modern credit scoring capability, risk management capability and ability to attract human capital, you know, the right incentive compensation structures, ”said Acharya.

“If we reduce the state of government in the banking sector, in addition to the backdoor privatization that was mentioned, I think we would really elevate the quality of regulation for the system,” he said. said.

‘Direct deficit financing should be the last resort’

Former Governor of Reserve Bank of India d. Subbarao said that direct financing of losses by RBI should be the last resort “Today’s crisis is not extraordinary”. “The issue of direct funding is based on the argument that the government has borrowed more this year than usual,” he said.

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