Banking stocks saw a sharp decline following the 2024 Budget’s lack of significant sector reforms with shares of major banks falling over 1 per cent on the Budget day.
Investors had anticipated measures such as the consolidation of government-owned banks, divestment initiatives, or recapitalisation efforts, but these expectations were unmet.
However, the IDBI Bank disinvestment process was on track with the RBI in the advanced stages of granting clearance based on the fit and proper criteria. The process is progressing well, with the due diligence stage expected to commence shortly and the target is to complete the disinvestment within this financial year.
The government was expected to introduce amendments to the Banking Regulation Act of 1949 and other relevant laws during the upcoming Budget Session. Additionally, amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 are being considered to facilitate the privatisation of public sector banks.
No privatisation roadmap
Finance Minister Nirmala Sitharaman, while presenting the Budget for 2021-22, announced the privatisation of public sector banks (PSBs). Other than IDBI Bank, the government proposed to take up the privatisation of two PSBs and one general insurance company in 2021-22, she stated.
To ensure the privatisation of a general insurance company, the General Insurance Business (Nationalisation) Amendment Bill of 2021 was approved by Parliament during the monsoon session that concluded in August of the same year.
The number of PSBs has decreased from 27 in March 2017 to 12 in April 2020, following the government’s consolidation of 10 PSBs into four. Under the amalgamation plan, Punjab National Bank merged with United Bank of India and Oriental Bank of Commerce, creating the second-largest PSB. Canara Bank merged with Syndicate Bank, and Indian Bank absorbed Allahabad Bank. The Union Bank of India was formed by the merger of Corporation Bank and Andhra Bank.
Some gains
Despite the absence of these reforms, the Budget did introduce an integrated technology platform to enhance the Insolvency and Bankruptcy Code (IBC). This platform aims to improve consistency, transparency, timely processing, and oversight for all stakeholders. The IBC has resolved over 1,000 companies, resulting in direct recoveries of more than Rs 3.3 lakh crore for creditors, and an additional 28,000 cases involving over Rs 10 lakh crore were resolved before admission. The budget also proposed changes to strengthen the IBC and its tribunals to expedite insolvency resolutions. Furthermore, reforms to enhance debt recovery tribunals were announced.
