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Essay on Privatization of Banks Advantages and Disadvantages

Privatization of Public Sector Banks Essay

Essay on Privatization of Banks Advantages and Disadvantages

Privatization Meaning

The meaning of Privatization is transferring of Public/Government Industries, businesses or services to private ownership or control.

In simple terms, Privatization is the process in which govt-owned services or businesses are brought under the control of private or non-public organisations.

Privatisation is considered to make public-owned/govt-owned companies and services efficient, effective and accurate. 

The government of India has recently decided to privatise two public sector banks (PSBs).

Competition has risen after the Reserve Bank of India allowed more independent banks. Public sector banks have lagged behind than private sector banks. According to reports, Private banks have higher FDI capital at 74 percent than public sector banks.

Now let's discuss the reasons for privatization of banks.

Reasons For Privatization of Banks

  • Strengthening Banks:The government wants to strengthen banks. Because by privatising banks, the banks will work efficiently and accurately.
  • It is believed that privatization of banks will deter government influence & control and aids economic growth.
  • Many committees have recommended to minimise the govt stack in public sector banks.
  • The govt wants to merge public sector banks with private banks to create big banks.

Advantages and disadvantages of Bank Privatization

Advantages of bank Privatization

  • Privatisation leads to efficieny and accuracy.
  • It is believed that private sector make good use of natural resources.
  • Apart from it, privatization attracts public investments and FDI's.
  • It helps government to control monopoly.
  • Privatising public sector banks will help to expand market share via technology, new products and services. HDFC Bank market capitalisation for the year 2021 was $116.83B while SBI had only $54.38B.
  • The share in loans in private sector banks spiked to 36% in the year 2020 from 21.2% in 2015. In contrast public sector share decreased to 59.8% from 74.2%.
  • The public sector banks are dependent on the govt for fresh capital infusion. A sum of 3,18,997 Crore of capital was infused by govt since 2015 to PSBs.

Market Share in Loans  (Percentage)
YearPSBsPrivate Banks
200079.4112.56
200574.2519.21
201077.2418.08
201574.2821.26
202059.836.04

Market Share in Deposits (Percentage)
YearPSBsPrivate Banks
200081.2912.63
200578.1617.12
201077.6817.31
201576.2619.44
202064.7530.35

Disadvantages of privatization of Public Sector Banks

  • Loss of Jobs: Employees are concerned that they may lose jobs due to the privatization of banks.
  • The SC/ST/OBC categories may lose reservation benefits. Because unlike public sector, private sector do have any reservation policies for jobs.
  • Private sector banks only care about profitability. Public sector banks provide so many facilities for the welfare of public, like loan subsidies, low interest rates, etc.
  • In order to gain more profit, the private sector banks may impose high service charges on transactions and other services.
  • Private sector banks can exit the market at any time.
  • Another limitation of private sector banks is limited safety and security. All India Bank Officers Confederation claimed that Indian Citizens prefer safety and security of their money deposits that is offered by Public Sector Banks.

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Essay on Privatization of Banks Advantages and Disadvantages