Centre lifts embargo on private banks to engage in government-related business

Ramping up its efforts to boost privatisation, the Centre Wednesday lifted the embargo on private sector banks for the conduct of government-related banking transactions. Before this, only a few private banks were permitted to engage in government businesses such as taxes and other revenue payment facilities, pension payments, small savings schemes, etc.

“Private banks can now be equal partners in the development of the Indian economy, furthering the government’s social sector initiatives and enhancing customer convenience,” Finance Minister Nirmala Sitharaman tweeted.

निजी बैंक अब सरकारी बैंकों के साथ बनेंगे देश के विकास में बराबर के साथी। निजी बैंकों के ऊपर सरकारी व्यवसाय पर लगी रोक हटी। उपभोक्ताओं को मिलेगी बेहतर सेवाएँ व सुविधाएं। सरकार के सामाजिक और वित्तीय समावेश योजनाओं में निजी बैंक भी होंगे भागीदार। @FinMinIndia https://t.co/ITtxalwNbx

— NSitharamanOffice (@nsitharamanoffc) February 24, 2021

This step is expected to further enhance customer convenience, spur competition, and higher efficiency in the standards of customer services, the government said.

The step could be seen as an extension of Prime Minister Narendra Modi’s pitch for privatisation during his speech in the Lok Sabha during the Budget Session of the Parliament. Modi’s statements pitching the importance of the private sector come in the backdrop of a push towards government spending, which the government expects will help crowd in private investment.

A statement released by the Centre said private sector banks are at the “forefront of imbibing and implementing latest technology and innovation in banking”. With this move, private sector banks would now be equal partners in the development of the Indian economy and in furthering the social sector initiatives of the government, the statement read.

With the lifting of the embargo, there is now no bar on RBI for authorization of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to RBI, the statement read.