The Centre is considering cutting its stake 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 comply with the stock market regulator Sebi’s minimum public shareholding requirement, according to a report by The Economic Times.
Alongside the proposed stake sales, the government is preparing for another round of consolidation among public sector banks, which could see two additional lenders identified for privatisation, the report said, citing people familiar with the matter.
The proposed dilution would increase the proportion of shares available to public investors in the four banks. Depending on market conditions, the government may sell part of its holdings through the offer-for-sale (OFS) route. The banks could also raise funds from the market according to their individual 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 sell its stake through the OFS route, depending on market conditions.
Increasing public shareholding is also expected to help improve the banks’ market valuations. However, these proposed stake sales are separate from any privatisation plans, which could require additional decisions and legislative amendments.
WHICH FOUR PSU BANKS ARE IN FOCUS?
According to figures cited in the report, the government currently owns 92.44% of Indian Overseas Bank, 81.19% of Central Bank of India, 90.95% of UCO Bank and 93.85% of Punjab & Sind Bank.
Bringing government ownership down to 75% would require larger stake sales in Indian Overseas Bank, UCO Bank and Punjab & Sind Bank than in Central Bank of India. The scale and timing of the transactions would depend on market conditions and the government’s decisions.
The government had granted state-owned companies, including financial institutions, an exemption from complying with the minimum public shareholding requirement of 25% until August 2026. According to the report, another extension was expected to be formally notified.
The planned stake sales would increase the public float in the four banks and bring them closer to the ownership requirements prescribed by the market regulator.
CENTRAL BANK OF INDIA, INDIAN OVERSEAS BANK ON PRIVATISATION LIST
The government is also developing a broader strategy for consolidating public sector banks, with the long-term aim of retaining three or four large state-owned lenders.
Central Bank of India and Indian Overseas Bank have reportedly been shortlisted by NITI Aayog as potential candidates for privatisation. However, the report does not suggest that a final decision has been taken to sell either bank.
The proposed consolidation exercise will consider several factors, including technological compatibility, geographical presence and the business composition of individual lenders. Officials have indicated that the banks themselves would also be expected to provide suggestions for the process.
Privatisation would require amendments to existing legislation, including the Banking Companies (Acquisition and Transfer of Undertakings) Act. According to an official cited in the report, these changes could be pursued alongside the consolidation exercise.
In the Union Budget for 2021-22, the government had announced plans to privatise two public sector banks and one general insurance company, in addition to IDBI Bank.
IDBI BANK DEAL
The latest proposal follows the government’s announcement 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 forms part of the government’s broader effort to reduce its ownership in state-linked financial institutions and attract private capital. However, the proposed stake sales in the four public sector banks are primarily intended to increase public shareholding and meet stock market requirements. They do not, by themselves, constitute a decision to privatise the lenders.
The government’s broader objective is to retain three or four large state-owned banks while exploring further consolidation and possible privatisation based on the lenders’ business profiles, operational compatibility and other relevant considerations.
