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In a reportedly heated meeting between the Reserve Bank of India (RBI) and government nominees, RBI’s Deputy Governor, Viral Acharya suggested privatisation of banks as a solution to the government's precarious financial position.
In the 23 October meeting that ran for over ten hours, government officials stated that they did not want to borrow more money and ruin fiscal deficit targets to pump in more money into the Public Sector Banks (PSBs).
In response to this, Mr Acharya said the government should consider privatising PSBs if “the fiscal deficit is a binding constraint” as per the Business Standard report. The government had missed its fiscal deficit targets for last year. Missed targets are not favourable to attracting investment to the country.
Eminent economist and former NITI Aayog chairman, Arvind Pangariya had made a formidable case for the same in March 2018. He stated, “I firmly believe that privatisation of all public sector banks, except perhaps the State Bank of India, should be on the election manifestos of all parties who wish to present themselves as serious candidates to form the government in 2019.”
Around 70 per cent of the banking sector deposits are held by PSBs and also the banking industry has seen the amount of NPAs rise to over Rs 10 lakh crores.
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