# Losses Have Been Cut, and It’s Time to Reprivatize India’s Public Sector Banks.

1 Opinion July 17, 2024 livemint.com ![Viral Acharya](/sites/default/files/styles/246w/public/assets/images/Viral%20Acharya%20Article.jpg?itok=ShnIBR08)By Viral Acharya

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Reprivatizing public sector banks (PSBs) never seems to be on the table in India. I contend that it should be at this point of time.

Until five years back, the price-to-book ratio of most PSBs was less than 1, in part due to not having fully recognized non-performing assets (NPAs) and not marking impending losses. It was considered inopportune then to discuss reprivatizing PSBs, akin to selling the family brassware for scrap value.

Things have changed. Losses are now more or less fully recognized. Significant capital injections have been made by the government. As per the bank balance sheets for the March quarter, seven PSBs— including the largest one—have less than 1% of loan advances in net NPAs, i.e., NPAs that are not provisioned for. None of the PSBs are anymore under the Reserve Bank of India (RBI)’s Prompt Corrective Action framework which imposes lending restrictions. With the Insolvency and Bankruptcy Code being actively used to resolve defaulted debt, corporates have deleveraged and fresh NPA slippages have come to a trickle. Management at PSBs has had the opportunity to rebuild balance sheet strength rather than simply focus on evergreening of distressed borrowers or punt on treasury gains by investing in government bonds. Recognizing these positive developments, capital markets have rewarded the valuation of PSB stocks and their price-tobook ratio is now more than 1 on average. The government should take all the credit it deserves for this turnaround and start reprivatizing the PSBs without much ado. Let me provide five compelling reasons.

Read the full [*Mint* article](https://www.livemint.com/budget/budget-2024-privatization-psu-banks-public-sector-banks-asset-quality-npas-psbs-management-rbi-private-banks-11719296193842.html).
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*Viral Acharya is the C.V. Starr Professor of Economics*

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