Privatization of Banks, Insurance companies, Air India, Shipping Corporation, and BPCL form the proposed plan by the government in the financial year 2021-22. The government fund availability and the space for private players move the PSUs to privatization. As there is an economic downturn, there is a need for capital flow from the Government sector to manage the upsurge of the NPA ratio that affects the functions of Banks. PSU Bank privatization could face hurdles amid covid-19. The Banks and Insurance companies easily handle the problems with privatization. The problems in these PSUs are less profit generation, reducing the NPAs, branch closure in other parts of the Country which is under-performing, reduction in the human resource, more charges because of the bank conversion as a private bank and expectation of increased profits through better marketing ideas. In this ongoing crisis, this blog content is worth sharing as the participation of Cost accountants for the private sector Banks and Insurance Companies help for development. Let us discuss the role of management accountants or cost accountants for Bank privatization and insurance companies.
Investment from the private sector
Privatization is the topic that makes the budget spicier. Two PSUs and one insurance Firm to be privatized as per the plans by the Government. Banking losses indirectly waste public money, human resource and also reduces economic growth. The loss in the public sector banks become nationalized and socialized with using taxpayer’s money. From a political viewpoint, a public sector bank can be converted as a private bank but not as a foreign bank. Directly selling the government-owned bank to the foreign investor is not a rational one.
The divestment proceeds projected for the year 2020-21 from the privatization of PSBs are 90,000 Crore. The bidder’s eligibility criteria were fixed by the government as adoptable this year to sell the banks to private investors. Private Banks also fail to collect the loan amount for vehicle loans, personal loans and Gold loans. So, privatization is not the panacea, and it is not the foundation for building a competitive banking system is the argument that evolves on the other side. The Government anticipates increasing the private investment and competitive market structure for the banking sector with privatization.
Global practices of private sector
The work culture in public sector banks is traditional. Traditional incentive structure to human resources, following the outdated rules, uniformity to be followed in all branches which makes the operations inflexible, political influence during the appointment of a board member, and the performance metric of employees is not measured as business development per employee as like private banks and foreign banks are the examples of PSU administration. The entities BSNL and MTNL struggle because of the competition between the private sector and the public sector. As the physical presence of RBI is not possible in the same name, Banks operate as the representative of RBI. The boom and depression of the economy have an impact on the profitability of the banks. The ownership structure of banks influences the competition, quality, corporate governance and cost management. Private sector banks and foreign banks implement global practices which end up with result-driven operations.
How do cost accountants help Banks and Insurance Companies?
The main focus of the cost accountant is to understand market trends, utilize the opportunities to increase revenue, monitor the low profile employees, check the source of funding for banks, track the tax payment, control the expenses through budgeting, assess the risk, structure the operations, and enhance the capital investments. In the context of Bank privatization latest news today, there is demand for understanding the awareness of resources, cost of resources and outsourcing of public services.
The services of PSUs are for the four types of users such as the population, government bodies, customers, and other entities dealing on a commercial basis. In the private sector, success is measured in terms of money. In the public sector, performance is measured in terms of public satisfaction. Operations of the banks require transparency and accountability that is operated through Cost accounting. As per the research HOQUE; ALAM, 2004, the change in the organizational structure happens for significant reasons. The change of organizational structure from the public sector to the private sector brings changes in the environment of the organization, competition and also introduce new relationships to the business. Management accounting help to re-shape the external drivers and internal environment because of privatization. The factors such as market pressure, external elements, government laws, expectations of customers, social changes, political changes, technological changes, changes in the size of the organization, and changes in the management policies of the organization demand for the inclusion of changes in the organizational structure. To handle these changes cost and management accounting help in cost-effective strategies and learned methodologies to enhance profitability.
Bottom line
Cost accountants use budgeting, estimating techniques and cost control programs to improve the margins of the Company. Before investing in any business, the investor thinks about the future of the business and the current financial position of the business. Cost accountants help in bringing changes and enhancing the investment with banks and insurance companies through quality management systems.