• Recently, the government has decided to have a relook at some key aspects of Banking Laws (Amendment) Bill 2021 – which aims to Privatise Two Public Sector Banks (PSBs) – during the Winter session of Parliament.
  • In the last session, the government passed a bill that will allow the privatisation of state-owned general insurance companies, through the General Insurance Business (Nationalisation) Amendment Bill, 2021.

Banking Laws (Amendment Bill 2021

  • The Bill aims to amend banking companies acquisition and transfer laws of 1970 and 1980 and the Banking Regulation Act, 1949 to achieve privatisation of two PSBs to meet disinvestment targets as stated by the finance minister in the Union Budget 2021-22.
  • These laws had led to the nationalisation of banks, so relevant provisions of these laws have to be changed to pave the way for the privatisation.
  • This move will bring down the minimum government holding in the PSBs from 51% to 26%.

Important points:

  • The transfer of ownership, property or business from the government to the private sector is termed privatisation. The government ceases to be the owner of the entity or business.
  • Privatisation is considered to bring more efficiency and objectivity to the company, something that a government company is not concerned about.
  • India went for privatisation in the historic reforms budget of 1991, also known as ‘New Economic Policy or LPG policy’.
  • Nationalisation is the process of taking privately-controlled companies, industries, or assets and putting them under the control of the government.
  • It often happens in developing countries and can reflect a nation’s desire to control assets or to assert its dominance over foreign-owned industries.
  • The government decided to nationalise the 14 largest private banks in 1969. The idea was to align the banking sector with the socialistic approach of the then government.
  • State Bank of India (SBI) had been nationalised in 1955 itself, and the insurance sector in 1956.
  • Various governments in the last 20 years were for and against privatisation of Public Sector Undertaking (PSU) banks. In 2015, the government had suggested privatisation but the then Reserve Bank of India (RBI) Governor did not favour the idea.
  • The current steps of privatisation, along with setting up an Asset Reconstruction Company (Bad Bank) entirely owned by banks, underline an approach of finding market-led solutions to challenges in the financial sector.

Way Forward

There is an urgent and imperative need to bring in a suitable statutory framework to consider wilful defaults on bank loans a “criminal offence”.


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