The Centre on Wednesday lifted the restrictions on grant of government businesses to private banks, Union Finance Minister Nirmala Sitharaman announced in a tweet. “Embargo lifted on grant of govt business to private banks,” she tweeted. “All banks can now participate.”
In an official release, the finance ministry said that only a few private sector lenders were allowed to conduct government-related banking transactions like payment of taxes and other revenues, pension payments and small savings. The government’s decision on Wednesday will allow all private sector banks to carry out these operations.
“This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services,” the release stated. It said that the decision will make private banks “equal partners in development of the Indian economy”.
Private lenders will now have to get authorised by the Reserve Bank of India, before they can begin operating in government-related transactions.
Meanwhile, the decision led to positive response in bank stocks, as far as equity markets are concerned, as the Nifty Bank sub-index closed with a gain of 3.80% on Wednesday. Leading private lenders like Axis Bank, HDFC Bank and ICICI Bank were among the top gainers in the market, with their stock prices rising in the range of 4%-5%.
Uday Kotak, Chief Executive Officer of Kotak Mahindra Bank welcomed the move, reported Mint. “It will enable the banking sector to serve customers better,” he said. “Private and public sector must both work towards sustainable development of India.”
‘Loss making PSUs burden the economy,’ says PM
The government’s decision also holds significance since it came in the backdrop of Sitharaman announcing in the Union Budget earlier this month, that two public sector banks will be privatised in this financial year.
On Wednesday evening, Prime Minister Narendra Modi, while speaking at a webinar on the reforms proposed in the Budget, also spoke in favour of privatisation. He said that his government will stay committed to privatisation of public sector companies in all, but four strategic sectors, PTI reported.
Claiming that many public sector enterprises were “loss making” and that several of them needed support of public money, the prime minister said they burdened the economy. “Public sector enterprises should not be run because they were started many years ago and were someone’s pet project,” he said, according to ANI.