The thinking is that private investors might see more value in a bank that has other businesses that can be grown. Last week, Central Bank of India allowed a deal to sell its housing finance arm Cent Bank Home Finance to fall through by not going ahead with the transaction before the long-stop date of March 31, 2021.
In terms of the deal, the public sector lender would have received Rs 160 crore.
Similarly, Bank of India has been looking to sell stake in its life insurance arm, Star Union Daiichi. In good times, public sector banks have made investments in financial sector entities. But the Reserve Bank of India is now reluctant to grant permission to banks to set up subsidiaries.
In her Budget, the finance minister had said that the government will privatise two public sector banks and one general insurer during the current financial year. The Niti Aayog has decided to keep the five public sector banks that were part of the consolidation — Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank and Indian Bank — out of the privatisation process.
The reason for keeping the consolidated banks out of the privatisation process is that, while the merger is complete, the benefits of consolidation are yet to be realised. In the initial phase, there is expected to be a rationalisation of expenses, while in subsequent years more value is expected to be delivered through economies of scale and growth.
Bank of India, Bank of Maharashtra, Indian Overseas Bank, Central Bank of India, Punjab & Sind Bank and UCO Bank are the ones that were not part of the consolidation. IDBI Bank has been classified as a private bank after Life Insurance Corporation came in as an investor. The government has said that even after privatisation, the interest of employees would be protected and there would not be any change in their salaries and that rights and perquisites of workers would be protected.