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The drive to privatise banks presents an attractive opportunity for investors: Ex. RBI Dy. Governor

Former RBI Deputy Governor N.S. Vishwanathan said on Thursday that the government's decision to privatise two state-owned lenders provides an "exciting" opportunity for investors wanting to enter the market.

What is good for the country must be considered when deciding on the business that will be awarded a licence, he said at an event hosted by industry lobby IMC Chamber of Commerce and Industry. In response to recommendations for corporate entrance and worries about ownership and voting limitations, Vishwanathan stated that there exist constraints on who may start a bank that deals with people's savings all over the globe, especially in industrialised nations. On the issue of corporates having the money to invest in an institution, he stated that a real economy company would be influenced by stress in the larger economy, and we must fight against stress from other companies seeping into a bank. “The government's thinking process of privatising a handful of public sector banks presents an exciting opportunity in that space,” Vishwanathan, who used to oversee the central bank's crucial banking regulation and supervisory duties, said. Vishwanathan stated that while the Insolvency and Bankruptcy Code (IBC) performed effectively in the beginning, issues have since surfaced about the recovery ratios, which must be “addressed.” The statements were made in light of the resolution of the Videocon case, in which lenders were given only a 5% reimbursement. Defaults are unavoidable in the banking industry, according to Abizer Diwanji of consultancy company EY, but they must be dealt with immediately rather than waiting 5-7 years.

The delay in resolving the stress can degrade value, which can be realised, he said, adding that assets producing extremely low-resolution percentages might fetch up to 50% if the resolution attempts are successful. Vishwanathan stated that we must first decide whether to allow corporates before debating whether people with NBFCs should be allowed to manage a bank.

According to Narendra Ostawal of Warburg Pincus, private equity firms such as his will be interested in engaging in the bank privatisation process, which he sees as a "great opportunity." “The main issue here is one of regulation. What is the extent of an owner's economic ownership and governance control after the privatisation process? “I believe it will be the driving force behind our success,” he added.

PEs require degrees of flexibility in governance and proportionate ownership, such as obtaining new management, he said, adding that the more divided the ownership, the more difficult it is to build consensus around the turnaround. Vishwanathan stated that banks all over the world have a dispersed holding structure and that the promoter is also obliged to have a certain degree of ownership.

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