Finance Minister Nirmala Sitharaman’s office on Wednesday announced that the embargo on grant of government business to private banks has been lifted, thereby allowing them to participate in development of the economy and social sector initiatives.
“Embargo lifted on grant of Govt business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering Govt’s social sector initiatives, and enhancing customer convenience,” the Finance Minister’s office wrote on Twitter.
“The Government has lifted the embargo on private sector banks (only a few were permitted earlier) for the conduct of Government-related banking transactions such as taxes and other revenue payment facilities, pension payments, small saving schemes, etc,” a press brief released on Wednesday by the Department of Financial Services.
The decision is expected to enhance customer convenience, spur competition and higher efficiency in the standards of customer services, it said.
With the lifting of the embargo, there is no bar on RBI for the authorisation of private sector banks (in addition to public sector banks) for government business, including agency business.
Private sector banks are at the forefront of imbibing and implementing the latest technology in the banking sector, now the government will be able to leverage their innovations to further its social sector initiatives.
NSE’s Nifty index was up 36,493.90 points after the announcement, while BSE Sensex surged over 1,050 points, NDTV reported. Private banks such as HDFC, Axis and ICICI soared 4-5percent.
The government has already announced its intent to privatise two public sector lenders, other than IDBI Bank, in the Budget 2021-22. Sitharaman, while presenting Budget 2021-22 earlier this month, had announced the privatisation of Public Sector Banks (PSBs) as part of the disinvestment drive to garner Rs 1.75 lakh crore.
“Other than IDBI Bank, we propose to take up the privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22,” she had said. The government last year consolidated 10 public sector banks into four and as a result, the total number of PSBs came down to 12 from 27 in March 2017.
As per the amalgamation plan, United Bank of India and Oriental Bank of Commerce were merged with Punjab National Bank, making the proposed entity the second-largest PSB. Syndicate Bank was merged with Canara Bank, while Allahabad Bank was subsumed in Indian Bank. Andhra Bank and Corporation Bank were amalgamated with the Union Bank of India.
In a first three-way merger, Bank of Baroda merged Vijaya Bank and Dena Bank with itself in 2019. SBI had merged five of its associate banks — State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad — and also Bharatiya Mahila Bank effective April 2017.
(With PTI inputs)