In­dia, China lead spate in bank pri­vati­sa­tion

The Pak Banker - - FRONT PAGE - NEW DELHI -APP

A new study records 17 bank pri­va­ti­za­tion deals in In­dia per year dur­ing 20112017, com­pared to just two a year be­tween 1995 and 2010.

Sell­ing stake in sta­te­owned banks has be­come com­mon for the In­dian govern­ment in the last few years. But bar­ring China, the same is not true for other mid­dle-in­come coun­tries, says a World Bank work­ing pa­per that has stud­ied the phe­nom­e­non.

The study, by Ata Can Ber­tay and oth­ers, looks at 475 pri­va­ti­za­tion events in­volv­ing com­mer­cial banks across 70 coun­tries dur­ing 1995-2017. The num­ber of such events rose from 11 a year in the late 1990s to 27 after the 2008 fi­nan­cial cri­sis, the study finds.

How­ever, the phe­nom­e­non re­mained sta­ble in high­in­come coun­tries and was un­com­mon in low-in­come ones. China and In­dia were the "driv­ing force" be­hind the rise of bank pri­va­ti­za­tion in the 21st cen­tury, the pa­per says.

Pro­ceeds from pri­vati­sa­tion went up from an av­er­age $ 6.8 bil­lion a year to $ 26.8 bil­lion in the pe­riod. The In­dian govern­ment alone earned $ 11.5 bil­lion through the sale of stake in 19 public sec­tor banks in 2017- equiv­a­lent to 2.2% of an­nual rev­enue, the study finds.

In In­dia, the study records two trans­ac­tions worth $600 mil­lion a year, be­tween 1995 and 2010, but this rose to 17 a year, worth $5.8 bil­lion, dur­ing 20112017. China moved from no trans­ac­tion dur­ing 19951999 to four deals a year after the fi­nan­cial cri­sis.

How­ever, while the num­ber of bank pri­va­ti­za­tion events has risen glob­ally, the av­er­age stake sold per deal has de­clined to 12% from 21% be­fore the fi­nan­cial cri­sis.

The study notes that banks cho­sen to be pri­va­tised were con­sis­tent un­der­per­form­ers and that 92% of all trans­ac­tions were done through sale in the do­mes­tic cap­i­tal mar­ket. Banks in­creased their work­force after the pri­va­ti­za­tion events, and ex­tended higher credit, the pa­per finds. There was no sig­nif­i­cant jump in non-per­form­ing loans for such banks.

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