Centre mulls disinvestment in banking, insurance sectors

A new disinvestment or privatisation policy is in the making and people in the know of things said that a draft cabinet note is being prepared for the same.

The Prime Minister's Office (PMO), the Finance Ministry and the Niti Aayog have already discussed the inclusion of insurance sector for strategic disinvestment and the banking sector is likely to be discussed upon later.

Among the insurance companies, the Life Insurance Corporation of India will not be part of this disinvestment process.

There are a total of eight state-run insurers, including six general insurance companies and one reinsurance company.

Of late, the government had to infuse capital into the general insurance companies as they were undercapitalised.

Earlier this month, the Union Cabinet approved capital infusion of Rs 12,450 crore into three state-run insurance companies -- the Oriental Insurance Company, the National Insurance Company and the United India Insurance Company.

The approved amount also includes Rs 2,500 crore infused in FY 2019-20.

In the last Budget on February 1, the government had set aside Rs 6,950 crore for recapitalisation of the three public sector general insurance companies.

Further, the talks of stake sale in banks, interestingly, comes just over couple of months after the merger of 10 public sector banks came into effect on April 1.

With the merger coming into effect, India currently has 12 public sector banks, down from 27 in the year 2017.

The consideration of widening the ambit of the privatisation plan comes as the government seems confident of a successful stake sale in PSU oil major BPCL, the bidding date for which ends this month.

Several global and domestic oil giants have shown interest in buying the 52 per cent stake in the state-run oil company, according to people in the know of things.

During the announcement of the ‘Aatmanirbhar Bharat' economic package in May, Finance Minister Nirmala Sitharaman had said that the Centre will come up with a new Public Sector Enterprise Policy, and open up all the sectors to the private sector.

She had said that under the new policy, a list of strategic sectors requiring the presence of PSEs in public interest will be notified and in these sectors, at least one enterprise will remain in the public sector while the private sector will also be allowed.

The minister had said that to minimise wasteful administrative costs, the number of enterprises in the strategic sector will ordinarily be only one to four and the others will be privatised, merged or brought under holding companies.

In the Union Budget for FY21, the government had set a disinvestment target of Rs 2.1 lakh crore. The target has, however, been described as ambitious by many as the Centre didn't reach anywhere near its target in the last fiscal.

Further, official sources said that the ongoing Covid-19 pandemic, besides slowing down the economy, has also slowed the government's disinvestment plans.