Centre may disinvest minority stake in 5 public sector banks

THE CENTRE may disinvest minority stake in five public sector banks (PSBS) if they fail to comply with the minimum public shareholding (MPS) norm by raising fresh capital from the market in a year, official sources told FE.

According to the Securities and Exchange Board of India (Sebi) rules, a company is required to have an MPS of 25 per cent within three years after listing. The government last set a deadline of August 2024 for these five PSBS – Central Bank of India, Indian Overseas Bank, Bank of Maharashtra, UCO Bank and Punjab & Sind Bank – to meet the MPS norm.

“With their strong balance sheets and better market valuation now, the PSBS have been asked to work out their equity capital raising plans to meet MPS. Extension to meet MPS can’t be for an indefinite period as it sends a wrong message to the market,” a senior official said.

The government may once again extend the timeline for these banks by another year to meet MPS, sources said. If any of these banks don't need capital, the government could sell a minority stake in them at an appropriate time.

Currently, the public holding in Punjab & Sind Bank is as low as 1.75 per cent, Indian Overseas Bank at 3.62 per cent, UCO Bank at 4.61 per cent, Central Bank of India at 6.92 per cent and Bank of Maharashtra at 13.54 per cent.

The government stake in four banks is more than 90 per cent. Punjab & Sind Bank is at 98.25 per cent, followed by Indian Overseas Bank (96.38 per cent), UCO Bank (95.39 per cent) and Central Bank of India (93.08 per cent). So, it seems difficult for them to dilute 18-23 per cent stake through qualified institutional placements (QIPS) to meet MPS on their own in a year going by their track record.

The high government holding in these banks is partly due to capital infusion by the government between FY17 and FY22 to help them tide over stress on their balance sheets due to the rise in non-performing assets (NPAS).

“Capital raising by the PSBS also depends on their need for capital to grow business and meet capital adequacy norms. If they don’t need more capital, then the Centre can monetise some of its holding in these banks to help bring down government holding to 75 per cent,” another official said.

Minority stake sales in PSBS by the government would add to its non-tax and non-debt receipts of the Centre.

PSBS, in recent years, have been using the QIP route to raise capital to dilute the government stake. In March this year, the state-run Union Bank raised Rs 3,000 crore through QIP which helped the bank raise public holding from 23.01 per cent to 25.24 per cent.

While the timeline for achieving 25 per cent MPS for listed companies was 2013, it was extended for state-run companies multiple times due to a lack of efforts from them towards compliance. In 2021, the Centre empowered itself to exempt selected public sector companies from the 25 per cent MPS norm.

The high govt holding in these banks is partly due to capital infusion by the govt between FY17 and FY22 to help them tide over stress on their balance sheets