The Indian government is considering paring its stake in Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank to 75%, so that the lenders meet the minimum public shareholding mandated by the stock market regulator. It plans to sell shares through the Offer for Sale (OFS) route, depending on market conditions, and expects to complete the first phase of the exercise within a year.
Simultaneously, the government is working on a strategy for the next round of consolidation in public sector banks, which could identify two more banks for privatisation, according to people familiar with the development. The Centre's long-term intention is to maintain three to four large state-owned banks.
HOLDINGS REMAIN WELL ABOVE THE 75% MARK
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. Each of the four is therefore above the 75% level the government is considering as the target.
The government had exempted state-owned companies, including financial institutions, from the minimum public shareholding requirement of 25% until August 2026. A further extension of that exemption is expected to be notified.
CONSOLIDATION CRITERIA AND LEGAL HURDLES
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.
The stake reductions are separate from privatisation, which would involve transferring control of a bank to a private owner. To proceed with privatisation, the government would need legislative amendments, including changes to the Banking Companies (Acquisition and Transfer of Undertakings) Act.
EARLIER PRIVATISATION MOVES
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. NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as the two candidates for privatisation.
The government recently announced that Fairfax Financial Holdings, promoted by the Canadian billionaire Prem Watsa, will acquire a 60.72% stake in IDBI Bank for Rs 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.