The government is considering reducing its stake in four public sector banks (PSBs) — Central Bank of India, UCO Bank, Punjab & Sind Bank, and Indian Overseas Bank, to 75% to comply with minimum public shareholding norms, The Economic Times reported. It added that the Centre's immediate priority over the next year is to increase public shareholding in these lenders.
The divestment will likely be done through offers for sale (OFS) by the government, depending on market conditions, while the banks could also raise capital from the market based on their individual requirements and strategies. A higher public float is expected to improve the banks' valuations, the report added.
Indian Overseas Bank privatisation on cards?
The Centre has a long-term objective to reduce and combine a number of smaller PSBs down to three to four large corporations, the report added.
In October, the Cabinet Committee on Economic Affairs (CCEA) cleared Canadian billionaire Prem Watsa's Fairfax Financial Holdings' acquisition of 60.72% stake in IDBI Bank for ₹52,878 crore.
Notably, Union Budget 2022 set a target to privatise two public sector banks and one general insurance company, apart from IDBI Bank.
The Centre is also preparing for another round of consolidation among state-owned lenders, which could include privatising two banks, the ET report said. Earlier, the NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as potential candidates, it added.
Rules and regulations for divestment process
However, the government would need legislative amendments to proceed with privatisation. This would include changes to the Banking Companies (Acquisition and Transfer of Undertakings) Act, the report said.
Notably, state-owned companies, including financial institutions were exempt from the 25% minimum public shareholding requirement till August 2026 and further extension is expected to be notified, it added.
After the proposed reduction of government stake in the four banks, privatisation would involve transferring control of a bank to a private owner — i.e. similar to IDBI sale to Fairfax.
Notably, the Centre's new Public Sector Enterprise Policy introduced in 2021 classified public sector commercial enterprises into strategic and non-strategic sectors, with provision for all non-strategic sectors PSUs to be considered for privatisation. For strategic sectors, the policy committed retaining a ‘bare minimum presence of the existing public sector commercial enterprises at Holding Company level’.
Strategic sectors were confined to four:
- Atomic energy, space and defence;
- Transport and telecommunications;
- Power, petroleum, coal and other minerals; and
- Banking, insurance and financial services.
Disclaimer: This is for informational purposes only. Please refer to the official government and bank websites for the latest updates.
