New Delhi: All banks will now be allowed to conduct government-related transactions. Finance Minister Nirmala Sitharaman made the announcement during Rajya Sabha Question Hour on Tuesday.
She said that the decision was taken with the objective of providing equal opportunities to all banks. However, she clarified that new banks would be allowed to carry out government-related activities in accordance with Reserve Bank of India's (RBI) regulations and guidelines.
The RBI explained that the government had made the same point clear. These include activities such as tax collection, pension payments, and the management of small savings plans. There are already some private sector banks operating in the country.
Here are the highlights of the Finance Minister's latest statement:
Many banks have already been licensed to carry out government-related activities in accordance with the existing regulations. New banks approaching the RBI for such approvals must comply with existing regulations. As a banking regulator, the RBI is already enforcing stricter rules in this regard.
Granting such permits to private banks will not have any negative impact on public sector banks. Already, all the public sector banks, as well as some private banks, are conducting public relations activities. In the case of these services, some customers are getting services from private banks.
Here, we need to take one thing into consideration. Businesses are growing. There is a situation where some customers only contact private banks. The key here is to see that there are no barriers to business management. All services should be available at all banks to all customers.
An announcement in the wake of the bank strike
The latest statement from the government comes at a time when there is a one-sided bank strike protesting the privatization of banking.
Finance Minister Nirmala Sitharaman announced in her 2021–22 annual budget that two other public sector banks besides IDBI Bank will be privatized. She said the move was part of an investment withdrawal process aimed at raising Rs 1.75 lakh crore. Last year, the Centre merged 10 public sector banks into four banks.
The number of public sector banks, which stood at 27 in March 2017, has now dropped to 12 in the wake of several mergers. In 2019, Dena Bank merged with Vijaya Bank and Bank of Baroda.
The legendary State Bank of India has merged with five subsidiary banks as well as Bharatiya Mahila Bank. United Bank of India has recently merged with Oriental Bank of Commerce and Punjab National Bank. Syndicate Bank merged with Canara Bank, while Allahabad Bank merged with Indian Bank. Andhra Bank and Corporation Bank merged into Union Bank of India.
Growing Private Banking is the Priority: Thakur
Replying to another question in Rajya Sabha, Assistant Finance Minister Anurag Singh Thakur said that banks handle two types of business. One of them is related to the Agency Commission. He explained that income tax collection, payments as well as pension payments on behalf of the Central and the State Governments would fall under this category.
The RBI-mandated operations management is another business activity conducted by the banking sector. Bank Guarantees and Banking Business are not covered by the Agency Commission.
The Minister said that the share of private banking in the banking sector has increased significantly in recent times. The share of the private sector in total deposits was 12.63 percent in 2000 and now stands at 30.35 percent. At the same time, the share of private sector banks in lending increased from 12.56% to 36%.
Thakur said private sector banking accounted for Rs 12.72 lakh crore in terms of loans to the priority sector, which is close to 50 percent of the total loans to the sector. He further said that the role of private banking in the government's emergency loan guarantee scheme during the Covid-19 year period was significant. He said the public sector banking sanction under the scheme was Rs 95,261 crore. This is explained as 38.22 percent of the total loan sanction under the scheme.
The Minister also said the share of private sector banking was 51.5 percent at Rs 1,28,297 crore. He said the figures reveal the level at which the private sector has gained prominence. He said the decision to allow all private banks to engage in government-related activities was based on factors such as outstanding services to customers, an unhindered view of business management, and the creation of equal opportunities.