After IDBI Bank sale, Centre looks at Central Bank, UCO Bank, 2 other PSU banks for stake cuts | Check terms here
Centre is considering reducing its stake in four public sector banks to 75% to comply with minimum public shareholding norms, The Economic Times reported on Friday.
The four banks under consideration for stake cuts are Central Bank of India, UCO Bank, Punjab & Sind Bank, and Indian Overseas Bank. The immediate priority is to increase public shareholding in these lenders over the next year, according to the report.
How will the government sell its stake in PSU banks?
The government may consider selling shares through offers for sale (OFS), 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 said.
Which PSU banks could be privatised?
The Centre is also preparing for another round of consolidation among state-owned lenders, which could see two banks identified for privatisation. NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as potential candidates for privatisation.
The government’s long-term objective is to have three to four large state-owned banks, according to the report. The proposed consolidation exercise is expected to consider factors such as technological compatibility, geographical reach and business mix. Banks are also expected to offer suggestions on the process.
However, the government would need legislative amendments to proceed with privatisation, including changes to the Banking Companies (Acquisition and Transfer of Undertakings) Act. These amendments could be pursued alongside the consolidation exercise, the report said.
What is the government’s PSU bank privatisation plan?
The Centre had announced in the 2021-22 Budget that it would privatise two public sector banks and one general insurance company, apart from IDBI Bank.
Earlier this month, the government announced that Fairfax Financial Holdings, promoted by Canadian billionaire Prem Watsa, would acquire a 60.72% stake in IDBI Bank for ₹52,878 crore.
During the IDBI Bank privatisation process, the government clarified that the bank’s volatile share price, amid limited trading activity, was not considered representative of its intrinsic enterprise value, according to the report.
Minimum public shareholding norms
The government had exempted state-owned companies, including financial institutions, from the minimum public shareholding requirement of 25% until August 2026. A further extension is expected to be notified, The Economic Times reported.
The proposed stake reductions would increase public ownership in the four banks while lowering the government’s holdings to 75%. The move to meet shareholding norms is separate from privatisation, which would involve transferring control of a bank to a private owner.
