Why the government wants to privatize IDBI

Banks before privatization

The wave of privatization in India is now reaching the last bastion of former alternative economic concepts - the banking sector.

Transport companies, telecommunications, metal industry, media - there is hardly an industry in India that is not characterized by privatization pressure and the penetration of foreign investors. The former restructuring towards a “third way” under the first Prime Minister Jawaharlal Nehru and later his daughter Indira Gandhi are on the test bench, in many cases they have even been reversed. Only the banking sector, largely nationalized between 1967 and 1969, has so far been largely spared the course of liberalization. This is now changing: More and more private credit institutions - such as the US American CitiGroup - are forcefully entering the Indian market. And the government appears to be preparing some fillets of the public banking sector for sale to such investors. In any case, the plan to induce the state banks and the cooperative banks to form larger units can hardly be explained otherwise. Earlier today, Treasury Secretary P. Chidambaram said at the annual meeting of the Indian Banks' Association (IBA) that mergers were necessary. Only large banks with correspondingly high deposits and customer numbers could survive the competition. In order to create incentives, tax advantages for such mergers are to be presented in the 2005 draft budget. In addition, the government is working on guidelines that require financial institutions to have minimum levels of financial strength. The minister’s announcements seem to have got the managers of the state credit institutions on their toes. Union Bank and Bank of India are now officially working on a merger. If the plans can be implemented, the second largest money house in the country would arise with a financial weight of 583 billion rupees (10.5 billion euros). The giant would have particular anchoring in the Midwest around Mumbai, where many large companies have their headquarters and over 30 percent of India's gross domestic product is generated. The fact that smaller banks are merging with others due to acute liquidity problems is nothing new. The political magazine »Frontline« points out that there have been around 35 mergers or rescue operations of ailing institutes since the industry was nationalized. However, dozens of well-known banks are still active in the various parts of the country. Accordingly, not all experts agree with chidambaram. Mergers are necessary to get out of trouble, my skeptics. But most of the state banks are on healthy feet. Critics point out that the aim of the effort appears to be to sell some facilities to the global banking world. Another case also fits into this picture. The government has put together an aid package worth 90 billion rupees to bail out the public Industrial Development Bank of India (IDBI). With the money distributed in the form of government bonds, old debts are to be repaid from the books. Large companies in the steel industry in particular have not yet repaid their former loans, although they have been doing better for a long time. Almost 30 percent of the total relates to an energy company that b ...

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