NEW DELHI: The Centre on Wednesday decided to lift the embargo on granting government-related business to private banks. Till now, government banking transactions were done only through public-sector banks and select private banks such as Axis Bank.
The decision, announced by Finance Minister Nirmala Sitharaman, will open the doors for the private sector to participate in government-related banking transactions running into lakhs of or crores, such as taxes and other revenue payment facilities, pension payments, small savings schemes.
In 2012, RBI had allowed private sector banks to act as agency banks but the move was not supported by the then government, which put an embargo on extending governmentbusiness to private banks. Now the government has decided to lift the embargo to push its privatisation drive.
Bankers have welcomed the move. Uday Kotak, chairman of Kotak Mahindra Bank, said, “It will enable the banking sector to serve customers better.” Meanwhile, bank unions opposed the government’s decision saying it is unfair and to the disadvantage of public sector banks, which have to meet social banking obligations.
“If the government will distribute their business to private banks, the ability of public sector banks to lend to weaker and priority sectors on concessional rates of interest will become difficult because the government’s business helps these banks to balance the cost,” said C H Venkatachalam, general secretary, AIBEA.
Level playing field
Private banks will get to handle government transactions such as: