Privatization of Banks: Advantages and Disadvantages Essay : Privatization of banks refers to transfer of ownership, business or property from the government to the private sector. In such cases the government do not want to hold the authority of the business anymore. The concept of privatization of banks aims to bring in more efficiency to the company that would not have been otherwise done by the government. India started its privatization in the budget of 1991 which is known as the LPG or the New Economic Policy. Recently, the Indian government has decided to looking at the main aspects of the Banking Laws Amendment Bill 2021 who main focus is to privatize the banks. The privatization of banks will be done mainly to achieve the disinvestment targets as declared by the finance minister. Due to capital injections and governance reforms, the financial position of the public sector banks has not been able to improve themselves. Moreover, the public sector banks lag record of dividend payment, market capitalization and profitability.
Advantages:
The advantages of privatization of banks are listed below:
Profitable venture: There are many public sector undertakings that are stagnant are not belong able to earn profited from the business. The government has therefore decided to privatize the public sector undertaking banks and save them from suffering severe losses in the future therebyhelpingthem to make profitable and sustainable business.
Better advancement: The banks that belong to the private sector are wellmanaged and better advanced than then public sector banks and are popular for their operational efficiency.
Better regulation than the government: Privatization of banks lessens the burden of responsibility from the government as the private banks are more restricted in dealing with loans and frauds.
Benefitted by foreign investments: The foreign investors prefer investing g in private banks as compared to the public sector banks.
Disadvantages:
The disadvantages of privatization of banks are discussed below as follows
Finance and profit difficulty: the private banks are not willing to purchase certain acceptable amount from the government, as the government may not spend on large purchases.
Fear of employees: Employees fear short term unemployment as they are at potential risks of losing their jobs. They feel that the national assets will be affected by the foreigners and so they withdraw investmentsfrom the banks.
High priced economy: The private sector banks do not show interest in cost reduction which results in unfair practices in many businesses that mainly involve in corruption. The cost of private sector bank’s production is high due to poor management and substandard technologies that often create disputes. Expensive raw materials and high rate of indirect taxes are other reasons of high-priced economy.
Unassured success: A regards success rates privatization is unassured due to which it suffers losses.
Conclusion:
In conclusion, privatization of banks improves the bank efficiency, the benefits become greater when the government leaves its control over the banks. When the banks get privatize to different strategic investors, foreign banks participate in the privatization process in which the government never interferes. Hence, the competition is not restricted.
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