Government plans to pare stakes in 4 PSU banks to 75%

New Delhi: The government is considering paring its stake in four public sector banks -Central Bank of India, Uco Bank, Punjab & Sind Bank and Indian Overseas Bank-to 75% to meet the stock market regulator’s mandated minimum public shareholding. Simultaneously, it is working on a strategy for the next round of consolidation in public sector banks that could identify two more banks for privatisation, according to people familiar with the development.

The Union government announced in the 2021-22 budget that, besides IDBI Bank, it would take up two public sector banks and one general insurance company for privatisation. Earlier this month, the government announced that Canadian billionaire Prem Watsa-promoted Fairfax Financial Holdings will acquire a 60.72% stake in IDBI Bank for Rs 52,878 crore. The Centre’s long-term intention is to maintain three to four large state-owned banks.

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Valuations Expected to Rise

The NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as the two candidates for privatisation.

“The first step is to increase public shareholding in the four lenders in the next one year,” an official said. “While banks can tap the market as per their own strategy, the government will offload its stake, depending on market conditions, through the offer for sale route.”
The greater public float is also expected to improve their valuation.Also Read: HDFC Bank begins probe into alleged internal data leak

Queries emailed to finance ministry did not elicit a response till press time. “The aim is to have three or four large banks, and some of the suggestions in this regard have to come from the banks themselves based on factors such as technology compatibility, geographical spread and business mix,” said another official, clarifying that privatisation plans will also consider these factors. “Privatising them will require changes in legislation, including the Banking Companies (Acquisition and Transfer of Undertakings) Act, which may be pursued alongside the consolidation exercise,” the official added.

The government had exempted state-run firms, including financial institutions, from meeting the minimum public shareholding of 25% public float until August 2026, and a further extension is expected to be notified.

In the case of the privatisation of IDBI Bank, the government clarified that the volatile stock market price of the narrowly traded IDBI stock was disregarded because it did not align the valuation with the enterprise’s intrinsic value.

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