SBI says it’s time to disinvest PSU banks. Will Budget 2024 consider the proposal?

As Finance Minister Nirmala Sitharaman is set to present the Union Budget 2024 on July 23 during the upcoming Parliament session, the spotlight turns to the future of public sector banks (PSBs) in India amid reports advocating disinvestment of government’s shares in them.

The financial sector eagerly awaiting the government’s stance after the State Bank of India (SBI) in its recent reports advocating for these institutions’ disinvestment.

Ranen Banerjee, Partner and Leader Economic Advisory, PwC India said “In an emerging and growing economy, there is still relevance of public sector banks. Further disinvestment of public sector banks is not an immediate imperative from a fiscal resources perspective as the government has enough fiscal headroom to meet or exceed the deficit targets set in the interim budget. From a development perspective, the objectives are not dependent on the divestment of PSUs but better governance through uniform regulatory requirements for PSUs and private banks should help.”

The Union government is expected to keep any disinvestment plans on the backburner in the upcoming Union Budget and may look at disinvestment opportunities in the financial year 2025-26, Achala Jethmalani, Economist, RBL Bank told Money Control.

Jethmalani said that the mega dividend from the Reserve Bank of India (RBI) and other PSU companies may lead to some revenue distribution. Jethmalani also said that the Budget is expected to focus on capital expenditure and meeting rural demand.

In its recent research report, the State Bank of India (SBI) pitched for disinvestment of public sector banks (PSBs) and consolidation of existing government-owned banks.

The report titled, ‘Prelude to Union Budget 2024-25’, also recommended that the government should tweak the tax on deposit interest and make flat tax treatment across the maturity ladder in line with mutual fund and equity markets.

Highlights of report

*As banks are in good condition, the government should take a stance on the disinvestment of PSBs

*About the privatisation of IDBI Bank, it said the government and Life Insurance Corporation of India are selling an almost 61 per cent stake in the lender. Presently, the government owns over 45 per cent stake in IDBI Bank, and LIC has a 49.24 per cent shareholding.

*The report also recommended that the government should tweak the tax on deposit interest and make flat tax treatment across the maturity ladder in line with mutual fund and equity markets.

*As this amount will be in the hands of depositors, the report said, it could unleash additional spending and thereby, more GST revenue to the government. Deposits are taxed on an accrual basis and other asset classes only on redemption and there is also a need to remove this treatment, it added.

The report by the Economic Research Department, State Bank of India (SBI), expressed expectation that the government will look into the concerns over the Insolvency and Bankruptcy Code (IBC) that must be improved and expediting cases under the IBC should be a key change.