The Centre is considering reducing its shareholding in four public sector banks Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank, to 75% over the next year to meet stock market regulator Sebi’s minimum public shareholding requirement, reported The Economic Times. Alongside the proposed stake sales, the government is working on a plan for the next round of consolidation among public sector banks, which could identify two more lenders for privatisation, the report said, citing people familiar with the development.The proposed stake dilution would increase the shares available to public investors in the four banks.
The government may sell part of its holdings through the offer-for-sale (OFS) route, depending on market conditions, while the banks could also raise funds through the market based on their own plans.“The first step is to increase public shareholding in the four lenders in the next one year,” an official told ET. The official added that the government would offload its stake through the OFS route, depending on market conditions.
The higher public float is also expected to help improve the banks’ valuations. However, the proposed stake sales are separate from the question of privatisation, for which further decisions and legislative changes may be required.WHICH FOUR PSU BANKS ARE IN FOCUS?The government currently holds 92.44% in Indian Overseas Bank, 81.19% in Central Bank of India, 90.95% in UCO Bank and 93.85% in Punjab & Sind Bank, according to the figures published in the report.
Reducing the government’s stake to 75% would require a larger sell-down in Indian Overseas Bank, UCO Bank and Punjab & Sind Bank than in Central Bank of India. The size and timing of any share sale would depend on market conditions and the government’s decisions.The government had exempted state-run companies, including financial institutions, from meeting the minimum public shareholding requirement of 25% until August 2026.
A further extension was expected to be notified, the report said.The proposed stake sales would increase the public float in these banks and bring them closer to the market regulator’s prescribed ownership norms.CENTRAL BANK OF INDIA, INDIAN OVERSEAS BANK ON PRIVATISATION LISTThe government is also working on a broader strategy for public sector bank consolidation, with the long-term objective of maintaining three or four large state-owned banks.NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as candidates for privatisation. However, the report does not indicate that a final decision has been taken to privatise either lender.The government’s consolidation plans will also take into account factors such as technology compatibility, geographical spread and the business mix of individual banks.
Officials have indicated that banks themselves would need to contribute suggestions to the process.Privatisation would require changes to existing legislation, including the Banking Companies (Acquisition and Transfer of Undertakings) Act. Such amendments could be pursued alongside the consolidation exercise, according to an official cited in the report.In the 2021-22 Union Budget, the government had announced plans to privatise two public sector banks and one general insurance company, apart from IDBI Bank.IDBI BANK DEALThe latest plan comes after the government announced earlier this month that Fairfax Financial Holdings, promoted by Canadian billionaire Prem Watsa, would acquire a 60.72% stake in IDBI Bank for Rs 52,878 crore.The IDBI Bank transaction is part of the government’s wider effort to reduce its ownership in state-linked financial institutions and bring in private capital.
The proposed stake sales in the four public sector banks, however, are aimed first at increasing public shareholding and meeting market requirements; they do not by themselves amount to a decision to privatise those lenders.The government’s broader intention is to retain three to four large state-owned banks while considering further consolidation and privatisation, depending on the banks’ business profiles, operational compatibility and other factors.- Ends