on November 27, 2021)The Reserve Bank of India’s decision to keep corporates out of bank licenses will help the government dispel allegations that it is selling banks to large businesses. However, the number of potential buyers for public sector banks (PSBs) will come down.
In the absence of any deep-pocketed corporate houses, the bidders for PSU banks should be either private or multinational banks or private equity investors, who would be in a position to come up with a few billion dollars to buy the bank. The challenge in the case of private equity investors is that they will seek an exit after a few years, while multinational banks are increasingly reducing their retail exposure as retail. banking Being a domestic activity due to compliance cost.
prefer private players HDFC bank, Box, ICICI And Axis There is potential to raise equity, but pension liabilities will be a deterrent. In March this year, Finance Minister Nirmala Sitharaman had said that the salary and pension of bank employees would be protected in case of privatization. A private banker said, “The deal breaker will be the pension liability of these banks. The fact that pensions are linked to inflation makes it worse for any buyer.
This is the reason why banks are trading at low valuations despite cleaning up their loan books, the source said.
For private banks, a bank license or a branch network has the same appeal as a corporate house. Even more so in view of the disruption that digital is causing. “Unlike in the past when a domestic bank license attracted a lot of interest, there was only one serious bidder for
, dbs, When RBI was looking for someone to take over PMC Bank despite the lure of license from the Mumbai headquartered bank, again there was only one bidder,” pointed out a banker.
While PSBs are in better financial shape, a buyer will need to infuse more capital and will likely see an increase in cost of funds as government ownership, which provides a cushion to depositors, will no longer be there. Since liberalisation, the central bank has taken the safe route of issuing bank licenses to financial institutions. The first round of banks that got their licenses was sponsored by financial institutions including HDFC, ICICI, UTI, IDBI and some non-banking finance companies such as Centurion, Kotak Mahindra and Bandhan. The experience of licensing professionals has not been good (Global Trust Bank and Yes Bank). The absence of private non-bank financial institutions makes disinvestment more challenging.