Government Considers Stake Sale in Five PSBs Amid Low Public Float

The government might divest minority stakes in five public sector banks (PSBs) if they fail to meet the minimum public shareholding (MPS) norm by raising capital from the market within a year, sources informed FE. According to Sebi rules, companies must achieve an MPS of 25% within three years after listing. The government set a deadline of August 2024 for Central Bank of India, Indian Overseas Bank, Bank of Maharashtra, UCO Bank, and Punjab & Sind Bank to comply.

With strengthened balance sheets and improved market valuation, PSBs are urged to devise equity capital raising plans to meet MPS. The government may extend the deadline for another year if necessary but won't prolong indefinitely. If banks don't require capital, the government may opt to sell minority stakes at an appropriate time.

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Presently, public holding in Punjab & Sind Bank stands at 1.75%, Indian Overseas Bank at 3.62%, UCO Bank at 4.61%, Central Bank of India at 6.92%, and Bank of Maharashtra at 13.54%. Government holding in four banks exceeds 90%, with Punjab & Sind Bank at 98.25%, Indian Overseas Bank at 96.38%, UCO Bank at 95.39%, and Central Bank of India at 93.08%.

The government's substantial stakes stem from capital injections between FY17 and FY22 to address balance sheet stress caused by rising NPAs. Minority stake sales could bolster the Centre's non-tax and non-debt receipts.

PSBs have utilized the QIP route for capital raise, exemplified by Union Bank's Rs 3,000 crore raised in March. Despite the initial 2013 deadline for 25% MPS, extensions were granted due to compliance challenges. The Centre may exempt select PSBs from this norm, akin to CPSEs, to enhance capital adequacy without treasury reliance.

Between FY17 and FY22, the government infused approximately Rs 3.5 trillion into PSBs, fostering governance reforms and asset quality improvements. Gross NPAs plummeted from 14.6% in March 2018 to 3.87% by March 2023.

The government's new public sector enterprises policy aims to minimize the number of banks to a dozen gradually. The proposed IDBI Bank sale could serve as a precursor to future PSB privatization endeavors.

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