Government to Reduce Stake in 4 Major Public Sector Banks; 25% Shares to be Made Available to the Public

The BJP-led government, under Prime Minister Narendra Modi, is set to reduce its stake in four public sector banks (PSBs) to 75%. The remaining 25% of the shares will be made available to the general public (retail investors).

The central government is currently considering reducing its stake in four major public sector banks to 75% over the next year. This move is aimed at meeting the 'minimum public shareholding' requirement set by the stock market regulator, SEBI, which mandates that at least 25% of the equity in any company listed on the stock exchange must be held by the public. All four of these public sector banks are already listed on the stock exchanges (NSE and BSE). Through this initiative, 25% of the shares in these banks will be made available to retail investors and other shareholders.

Plans for the Privatization of Public Sector Banks

According to media reports citing sources familiar with the matter, the government is also working on a plan for the next phase of consolidation (merger) of public sector banks, alongside the proposal to divest its stake.

The government's objective is to merge smaller and weaker public sector banks into larger, more robust, and financially stronger institutions—much like the previous consolidation where Punjab National Bank (PNB), Oriental Bank of Commerce, and United Bank of India were merged.

As part of this process, two additional banks may be identified for privatization. This means that banks not selected for mergers could be sold to large private-sector entities. Privatization is expected to improve operational efficiency, enhance corporate governance, and facilitate the adoption of modern technology. According to reports, NITI Aayog had previously shortlisted Central Bank of India and Indian Overseas Bank for privatization.

Which public sector banks will see a reduction in government stake? 1. Indian Overseas Bank – The government’s current stake in this bank is approximately 92.44%.
2. Punjab & Sind Bank – The government holds a 93.85% stake in this bank.
3. UCO Bank – The government’s stake in this bank is 90.95%.
4. Central Bank of India – The government’s stake in this bank is 81.19%.

Deal regarding IDBI Bank

Recently, the government approved the sale of a 60.72% stake in IDBI Bank. This stake will be acquired from the government for Rs 52,878 crore—at a price of Rs 81 per share—by 'M/s 10955230 Canada Inc.', a subsidiary of the Canadian firm Fairfax Financial Holdings. Of this 60.72% stake, 30.48% is held by the Government of India, and 30.24% is held by the Life Insurance Corporation (LIC). Even after this disinvestment, the government will retain a 15% stake and LIC will retain a 19% stake in the bank. In other words, together, they will continue to hold a combined stake of 34% in the bank.