Modi Government plans stake reduction in four PSU banks, shareholding could fall to 75%
The Modi government may reduce its stake in four public sector banks, potentially increasing public shareholding and creating fresh opportunities for investors.
New Delhi (The Uttam Hindu): The central government is planning to reduce its shareholding in four public sector banks — Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank — to 75 per cent. The move would increase public shareholding to at least 25 per cent, helping the banks comply with stock market regulations and expanding opportunities for investors. According to a report by The Economic Times, steps to increase public shareholding could be taken within the next year through share sales or fresh capital issuance.
Under Securities and Exchange Board of India (SEBI) regulations, listed companies must maintain a minimum public shareholding of 25 per cent. The government may sell part of its holdings through an Offer for Sale (OFS), while the banks could raise funds by issuing new shares through a Qualified Institutions Placement (QIP). The banks have reportedly sought an additional year from the Finance Ministry, citing challenging market conditions and difficulties in selling a substantial stake through a QIP. The government's current shareholding stands at 92.44 per cent in Indian Overseas Bank, 90.95 per cent in UCO Bank, 93.85 per cent in Punjab & Sind Bank and 81.19 per cent in Central Bank of India.
The proposed stake reduction does not necessarily mean privatisation, as the government would retain majority ownership with a 75 per cent holding. Although NITI Aayog had previously identified Central Bank of India and Indian Overseas Bank as potential candidates for privatisation, no final decision has been confirmed. Greater public shareholding could improve share availability for retail and institutional investors, while fresh capital could support banks' expansion and financial position. However, the timing, method and extent of the proposed share sales are yet to be finalised, and increased public participation does not guarantee higher share prices. Investors should assess each bank's financial performance, profitability, asset quality and market risks before making investment decisions.