Budget 2021: Big reform push in banking, insurance


The Narendra Modi government plans to privatise state-run banks and a general insurer to raise funds for its ambitious infrastructure and healthcare spending plans, finance minister Nirmala Sitharaman said in the budget, clearly signalling a move away from state domination of financial services. Sitharaman also raised the foreign direct investment (FDI) limit in insurance to 74% from 49% in a bid to woo funding from overseas. And, in a move aimed at getting banks to step up credit, the government plans asset reconstruction and management companies to take over bad loans.

In another first, government-owned infrastructure builders such as the National Highways Authority of India (NHAI) and the Power Grid Corp. of India Ltd (PGCIL) will pool their assets in trusts and sell units to investors, raising money for future spending, Sitharaman said in her budget speech. The finance minister also raised revenue projections from privatisation more than fivefold next fiscal to Rs 1.75 lakh crore as the government looks to complete the sale of already shortlisted companies such as Bharat Petroleum Corp. and Container Corporation of India.

“Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company,” Sitharaman told parliament. “This would require legislative amendments and I propose to introduce the amendments in this session itself.” While the minister did not disclose the names of the banks it intends to privatise, it’s likely to examine the potential sale of Punjab & Sind Bank, Bank of Maharashtra, UCO Bank or Indian Overseas Bank. These lenders are not part of government plans to merge state-owned lenders. ET had reported on the government’s plans to privatise some banks on June 3 last year.

“Disinvestment, monetisation, opening up of insurance, and the clean-up plan for stressed assets are signs of a self-confident India,” said Uday Kotak, chief executive of

. The funds-starved government, which is projecting a fiscal deficit of 6.8% of GDP in FY22 versus 9.5% this year, is leaning heavily on monetisation of assets. The government hasn’t been able to meet its asset-sale targets over the past few years. The intention to privatise banks marks a break with a half-century-old socialist-era legacy that began with nationalisation in 1969.

The government appears to have reversed plans to merge the three unlisted state-owned general insurers and instead wants to sell one of them. While New India Assurance is listed, United India, Oriental Insurance and the National Insurance Co. are fully owned by the state. The infrastructure investment trust (InvIT) plan will help the government pay for such long-gestation projects that are seen as critical to the economy. “Monetising operating public infrastructure assets is a very important financing option for new infrastructure construction,” she said.


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