RBI Issues Clarification On PSB Privatisation Report, Says Bulletin Article Doesn't Represent Its View

The RBI in its clarification said that the researchers are of the view that instead of a big bang approach, a gradual approach as announced by the government would result in better outcomes

The clarification was issued after certain sections of the media mentioned that the RBI is against privatisation of state-run banks.

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The Reserve Bank of India (RBI) on Friday clarified issued a clarification saying that the views expressed in its recent article, ‘Privatisation of Public Sector Banks: An Alternate Perspective’, do not represent the views of the central bank and are of the authors. The article appeared in the monthly bulletin arguing against a big bang approach to public sector banks (PSBs) privatisation.

In a release, the RBI explained, "As clearly stated in the article itself, the views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India."

The clarification was issued after certain sections of the media mentioned that the RBI is against privatisation of state-run banks, it said.

The article was published in the August 2022 issue of the RBI Bulletin. The article was prepared by the authors of the banking research division, Department of Economic and Policy Research researchers of the RBI.

In its clarification, the central bank said, “A big bang approach of privatising these banks may do more harm than good. The government has already announced its intention to privatise two banks. Such a gradual approach would ensure that large-scale privatisation does not create a void in fulfilling important social objectives of financial inclusion and monetary transmission.”

The article suggested that a big bang approach to privatisation of state-owned banks may do more harm than good. The article analysed various pros and cons of privatisation and identified how an emerging economy like India may face more challenges due to bank privatisation. The article suggested that market confidence tends to be in favour of state-run banks during time of crisis.

Some of the major reasons identified in the article showed that PSBs can serve the country better than private banks include better financial inclusion, a better credit system, and better efficiency of these banks.

Whereas, private banks mostly have failed to cater to the customers of the rural and semi-urban areas to date and customers from such locations are relying heavily on state-run banks for banking, the article mentioned.