Mudra Compass

The Prime Minister, Mr. Narendra Modi, has now a magnifying glass on him as the experts; public and banking sector wait for a plan on possible privatization of up to 4 banks in the next months. The effects of Coronavirus pandemic has put the governments of the world in alert, with no foreseeable future on site, the reforms, and adjustments have been exponentially increasing and in India, it’s no exception.

The ones that could go away

Although for now it is just suppositions of the markets and financial experts, most of them agree in four entities that could make the transition: Bank of Maharashtra, Central Bank of India, Indian Overseas Bank and the Central Bank of India. Whether all of them or some, even others, is remains, but the truth is that this advance is in answer to the government’s need of funding. All of this as the annual income of taxes has diminished by product of the COVID 19 virus situation.

The current plan is to select 2 of those 4 banks and announce the sale at the beginning of the fiscal year in April. The one with the most possibilities now is the Maharashtra due to their relatively small work force which could potentially be less risky than others.

What can be gained?

One thing to consider is that these banks belong on the mid-range size in the sector, a move that the government hopes please the shareholders and the public. The experiment is being thought out with these, as the risk of touching the bigger banks, like the State Bank of India (SBI), could be more perilous for Mr. Modi. This, as with them, they make the financing of the rural endeavors for the majority of the country.

What the government has in mind is to use this as a way to regain some funding that could help palliate the ongoing crisis and relocate the assets to such things as medicine and infrastructure. The only problem that some analysts see is that the amount of money that could be gained from these endeavors is not a fraction of what would be needed for the economic reforms that the government wants to implement.

What can be lost?

Nevertheless, the most glaring points of these sells are the impending damages that could be done to the banking industry, at least on the employee department. The government has up to 51% of the shares of the 12 banks that are partially owned by them. Most advisers recommend that before the sell, a rigorous restructuring plan is made so the effect of this action doesn’t scare the other shareholders and the employee losses can be kept to a minimum.

This is because; the banking sector is one of the most important pillars of job in the country, a position that could seriously be damp by this strategy.

Even more, Mr. Modi and his team has put on the table the plan of also privatizing other companies where they also have shares like airlines and railways. The last one, vital to the way of living of a large part of the population could be a change way too drastic for them.

The future upon us

Whichever decision is made, the certain thing is that the status quo of the government owned banking companies is soon to change and is up to the Indians to brace for the impact and hope for the best. As Coronavirus still looms over our daily lives, a balance between economy and sanitary branches will be made.

The government has up to 51% of the shares of the 12 banks that are partially owned by them.

Although for now it is just suppositions of the markets and financial experts, most of them agree in four entities that could make the transition: Bank of Maharashtra, Central Bank of India, Indian Overseas Bank and the Central Bank of India.