What is the news?
Government Identifies four banks for privatization
What does this mean?
The Indian banking sector is dominated by state-run banks and has been straddled by bad loans. Reform in this segment is the need of the hour and privatization of these banks will unlock shareholder value in these banks.
In its bid to follow-up on its agenda of reform, the government has identified four mid-size banks for privatization. The banks that have been short-listed are Bank of Maharashtra, Bank of India, Indian Overseas Bank and Central Bank of India.
The government has decided to begin with mid-sized PSU Banks since they expect that the resistance will be lower and this will give the government a chance to test the waters before looking at the larger institutions.
On the back of this news, the shares of these banks saw an upswing with all four banks hitting the 20% upper circuit during trading on Feb 16th, a day after the news came out.
How does it affect your wealth?
Indian Mutual Funds hold a combined value of Rs 43,597 Crs of assets in the form of shares of Public Sector Banks. While the exposure of funds in these identified banks are low, any reform in this sector has to be viewed as a positive to investors.