Finance Minister Nirmala Sitharaman has come out strongly in defence of the government’s bank privatization initiative, which has come under scrutiny over concerns about financial inclusion and national security. Addressing the Diamond Jubilee Valedictory Lecture at the Delhi School of Economics on November 4, 2025, Sitharaman stated that privatization would not dilute the priority sector lending of PSU banks or compromise national interest. She reiterated that the goals for which nationalization took place in 1969, including financial inclusion, could not be fully achieved despite 50 years of public sector dominance. “Nationalization did contribute to the expansion of priority sector lending, of government programmes, but it was an unprofessional setup under state control; and over a period, they indulged in value destruction, lost market share, were unable to attract talent,” she said.
After the government permitted banks to work professionally and pursued privatization, these long-held ambitions are now “beautifully achieved,” Sitharaman said. She also argued that privatization would not lead to banks abdicating their social responsibility, nor abandoning vast sections of the population in terms of financial services. Recalling the misutilization of public sector banks, which resulted in the “twin balance sheet problem” in 2012-13, she reminded that it took nearly six years for Prime Minister Narendra Modi to chair his first cabinet meeting to clear these problems. Indian banks, she argued, are the gold standard in terms of asset quality, net interest margins, credit and deposit growth, as well as financial inclusion.
The finance minister also highlighted important reforms in addition to banking sector consolidation, for example, merging of 27 public sector banks (PSBs) from 2017 to 12 in 2020 and divestments (as LIC took over controlling stake in IDBI Bank from the government in 2019). She emphasized that banks, governed by boards rather than political intervention, will benefit both the nation and the banking sector.
However, her comments have drawn criticism from bank unions and civil society organizations. The Bank Bachao Desh Bachao Manch, a civil society organization, stated that privatization would put credit at risk for people in rural and marginalized communities, who have largely depended on nationalized lenders for their borrowing needs. Bank unions have also gone on strike against the privatization moves, citing concerns over job security and the future of public banking.
Sitharaman gave an assurance that the government will ensure the salaries and pensions of all employees during this transition. She also criticized the opposition’s line that privatization is equivalent to looting the common people, saying that the persistent inefficiencies of public sector banks have prevented the economy from reaching its full potential. She added that professionalization and privatization are needed to strengthen the banking system and foster India’s growth aspirations. In short, Sitharaman made a strong case that privatization is a strategic reform that will make banks more efficient and help the government reach its goals of financial inclusion more quickly. Critics, on the other hand, say that privatization could hurt the social role that state-owned banks play. This debate highlights the challenges of striking a balance between economic reform and social welfare in India’s evolving financial landscape.