Finance Minister Nirmala Sitharaman on Tuesday sought to ease concerns that the privatisation of public sector banks would harm financial inclusion or weaken national interest.
Speaking at the Diamond Jubilee Valedictory Lecture at the Delhi School of Economics, she said that the 1969 bank nationalisation, while politically significant, did not fully achieve its intended goals. It helped promote priority sector lending and expand government-led programmes, but she argued that government control had also made public sector banks less professional and efficient.
“Even after five decades of nationalisation, the objectives were not entirely met,” she said. “Once we professionalised the banks, those same objectives began to be achieved effectively.”
She rejected the notion that privatisation would undermine access to banking for ordinary citizens, calling such fears misplaced. “This perception that professionalising or privatising banks would hurt inclusion is incorrect,” she said, adding that the national interest would continue to be served if banks operated independently with board-driven decisions.
The minister recalled how misuse of public sector banks in the past had led to severe balance sheet problems, referring to the “twin balance sheet issue” that emerged around 2012–13. She noted that it took several years after Prime Minister Narendra Modi came to power to stabilise the sector. “Today, Indian banks stand out for their asset quality, credit and deposit growth, and progress in financial inclusion,” she said.
Nirmala Sitharaman also pointed to the government’s ongoing efforts to strengthen and modernise the banking system. The privatisation of IDBI Bank, she said, was a key step in this direction. In 2019, the government sold its controlling stake in IDBI Bank to LIC, and later invited investors to participate in its strategic sale. The Securities and Exchange Board of India (SEBI) recently approved LIC’s reclassification as a public shareholder once the divestment process is complete.
She highlighted the government’s broader banking reforms, including a major consolidation drive in 2019 that reduced the number of public sector banks from 27 to 12. The mergers, she said, aimed to create stronger, more competitive institutions capable of supporting India’s growing economy.
Nirmala Sitharaman concluded by reaffirming that professional governance, not political control, was the key to maintaining both financial inclusion and national interest in India’s banking system.
