Finance Ministry has allowed all private sector banks to participate in government-related business

These can involve in collection of taxes pension payments and small savings schemes

• The finance ministry has allowed all the private sector banks to participate in government business related to services
• The business operations linked to the government were so far the forte of public sector lenders
• The business related to government such as small savings schemes and collection of taxes pension payments

Background for the Decision

• Government in the budget 2021-22 had announced to privatize two public sector lenders other than IDBI Bank
• Government also announced that privatization of Public Sector Banks (PSBs) is a part of the disinvestment drive to generate Rs 1.75 lakh crore
• Apart from privatization of two Public Sector Banks, announcement was also made to privatize the General Insurance Company in financial year 2021-22
• Also, central government had merged 10 public sector banks into four in March 2017. Thus, the total number of PSBs came down to 12 from 27
• Private sector banks, which are at the forefront of imbibing and implementing latest technology and innovation in banking, will now be equal partners in development of the Indian economy and in furthering the social sector initiatives of the government

Key highlights of the decision

• Currently, only some of the big private sectors are allowed to conduct government-related businesses
• So, now embargo has been lifted and this move will enhance the customer convenience and simulate the competition
• It will also simulate the higher efficiency in standards of customer services
• Private banks remain at the forefront of imbibing and implementing the latest technology and innovation in banking
• Now they have become the equal partners in the development of Indian economy
• Now, bar has also been lifted on RBI to authorize the private sector banks along with the public sector banks for Government business and Government agency business

Merger of the Public Sector Banks

• The Finance Ministry, while presenting Budget 2021-22 earlier this month, had announced the privatization 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 privatization of two public sector banks and one General Insurance company in the year 2021-22
• 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

Policy and Economy