Finance Minister Nirmala Sitharaman in her Union Budget 2021 speech on February 1 announced that two public sector banks and one general insurance company will be privatised as she revealed the government's intent to focus more on disinvestment going forward.
Sitharaman said all divestments announced so far will be completed in FY22, including BPCL, CONCOR, Pawan Hans, Air India and the Initial Public Offering of LIC. The government set the FY22 divestment target at Rs 1.75 lakh crore.
The privatisation of two public sector banks and one general insurance company comes as part of the consolidation in the banking and insurance sectors. Sitharaman has also announced Rs 20,000 crore recapitalisation of PSU banks.
The government will create a new list of companies for divestment, the FM said. Besides, it will form Special Purpose Vehicle for monetising land owned by the government PSUs.
Economists and analysts have been pointing out that the non-performing assets have been an issue, especially for the banks, and are rising due to stress in economic activity. However, the finance minister did not disclose the names of the banks that will be privatised. Banking sources say that big banks such as SBI or PNB will not be touched and it is the smaller and middle-level banks are likely to be privatised by the government.
The government is expected to bring down the stake in the two PSU banks below 51 per cent or sell the entire stake to private ownership. Bank unions are likely to oppose the government’s initiative to privatise PSU banks.
The government has also not disclosed the name of the public sector insurance firm that will be put up for privatisation. There are four PSU general insurance companies: New India Assurance, United India Insurance (UII), National Insurance Company (NIC) and Oriental Insurance Company (OIC).
In the last Union Budget, the government had set an ambitious target of strategic divestment to the tune of Rs 2.1 lakh crore and subsequently, in May 2020, the government came up with a new coherent public sector enterprise policy which stated that there will be a maximum of four public sector companies in strategic sectors and will eventually privatise other segments.
However, no significant progress was made in FY21 as the COVID-19 pandemic disrupted the economic activities, forcing potential buyers to save money and avoid making fresh investments. Strategic divestment will be a strong boost to PSU stocks that have a significant valuation comfort.