With the Union Budget 2024 set to be presented on July 23, the spotlight falls on the future of public sector banks (PSBs) in India. Recent reports have advocated for disinvestment of government shares in these institutions, sparking debate and anticipation within the financial sector. The State Bank of India (SBI), in its recent reports, has pushed for disinvestment, adding fuel to the fire.
However, Ranen Banerjee, Partner and Leader Economic Advisory, PwC India, argues that public sector banks still hold relevance in a growing economy. He suggests that immediate disinvestment isn’t necessary from a fiscal perspective, as the government has sufficient headroom to meet its deficit targets. Banerjee emphasizes that achieving development goals doesn’t depend on divesting PSUs but rather on implementing better governance through consistent regulatory standards for both PSUs and private banks.
Echoing this sentiment, Achala Jethmalani, Economist at RBL Bank, believes the government will likely postpone disinvestment plans for PSBs in the upcoming budget. Jethmalani suggests the focus will be on capital expenditure and meeting rural demand. She anticipates that the large dividend received from the Reserve Bank of India (RBI) and other PSUs could lead to revenue distribution.
The SBI, in its research report titled ‘Prelude to Union Budget 2024-25’, strongly advocated for disinvestment of PSBs and consolidation of existing government-owned banks. Additionally, the report recommended adjustments to the tax on deposit interest, proposing a flat tax treatment across all maturity periods to align with mutual fund and equity market practices. This, the report argues, would lead to increased spending and subsequently, higher GST revenue for the government.
The report also highlights concerns regarding the Insolvency and Bankruptcy Code (IBC), urging for its improvement and faster resolution of cases under the code. The SBI research team expresses the expectation that the government will address these concerns in the upcoming budget.
