The problem with public sector banks

Every now and then exhortations are made, including in this newspaper, that the government should further reduce its equity stake in public sector banks. The basic logic is that public sector banks are uncompetitive because of the government's implicit guarantee. Further, the inefficient maturity transformation practices of public sector banks have resulted in their accumulating 86 per cent of the non-performing assets (NPAs) of the banking sector compared to their asset base of 75 per cent.

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