Banking on change: The case for disinvesting in India’s public sector banks

Recently, at a Confederation of Indian Industry (CII) gathering in Kolkata, some of the country’s veteran bankers argued for the government to begin disinvesting its stake in the country’s many public sector banks.

Indeed, the stability of India’s economic landscape, particularly in the banking sector, presents a rare and timely opportunity for the government to advance its disinvestment strategy, especially within public sector banks (PSBs). The health of these banks has significantly improved, with non-performing asset (NPA) ratios reaching multi-year lows and capital adequacy ratios—a measure of a bank’s ability to handle losses— comfortably surpassing regulatory requirements.

In the year ended March 2024 (FY24), PSBs even raked in record net profits of Rs 1,40,000 crore as the net profit of India’s banking sector crossed Rs 3,00,000 crore for the first time. This suggests that the sector is poised for more market-driven growth and is less reliant on government interventions. The banking sector’s cleaned balance sheets, combined with the broader capital market enthusiasm, make a compelling case for the government to divest its stakes in these banks—either partially or fully—and let market forces drive their future trajectory.