The Indian government is planning to reduce its ownership in five public-sector banks (PSBs) over the next four years. This plan is being developed in coordination with the Department of Investment and Public Asset Management (DIPAM), the Department of Financial Services (DFS), and the banks themselves. The goal is to bring the government’s stake in these banks down by up to 20% to comply with the Securities and Exchange Board of India (SEBI) regulations.
SEBI requires that all listed companies maintain at least 25% public shareholding. However, public-sector banks were given an exemption until August 2026 to meet this requirement. Currently, the government holds a significant majority stake in several banks:
- Bank of Maharashtra: 86.46%
- Indian Overseas Bank: 96.38%
- UCO Bank: 95.39%
- Central Bank of India: 93.08%
- Punjab & Sind Bank: 98.25%
Since these banks have more than 75% government ownership, the government needs to reduce its stake by selling shares to the public.
Methods of Stake Sale
The government plans to reduce its holdings using two approaches:
- Offer for Sale (OFS) – In this method, the government directly sells some of its existing shares in the banks. The money generated from this sale goes directly to the government.
- Qualified Institutional Placement (QIP) – Here, the banks issue new shares to raise funds. The money raised stays with the banks and can be used for their growth and operations.
A senior official has indicated that the government is likely to focus more on the OFS route since most PSBs are already financially stable. This would allow the government to raise money for other financial needs.
Why is the Government Selling Shares?
In the past, particularly after the Asset Quality Review (AQR) process, the government invested a large amount of money into public-sector banks to help them recover from bad loans. Now that these banks have become profitable, the government owns excess equity worth over ₹43,000 crore in some of them. The plan is to use part of this surplus for the banks’ expansion and sell the remaining shares in the market.
Over the last two financial years, banks have raised money through QIP, but none have raised funds through OFS:
- In FY25, two PSBs raised ₹8,500 crore:
- Bank of Maharashtra: ₹3,500 crore
- Punjab National Bank: ₹5,000 crore
- In FY24, five PSBs raised ₹17,500 crore:
- Bank of India: ₹4,500 crore
- Bank of Maharashtra: ₹1,000 crore
- Indian Bank: ₹4,000 crore
- Union Bank of India: ₹8,000 crore
Despite this, the government has not sold any shares via OFS in recent years.
Next Steps
To move forward with this plan, the government has invited bids from merchant bankers and legal advisors to assist in selling its stake in public-sector banks and financial institutions. DIPAM has also issued a Request for Proposal (RFP) for hiring transaction advisors for three years, with a possible extension of one more year.
This stake sale is part of a broader strategy that aligns with the 2021-22 Budget announcement, where Finance Minister Nirmala Sitharaman had stated plans to privatize two PSBs and IDBI Bank.
A government official has also clarified that while DIPAM is focused on maximizing the value of the government’s stake in public-sector enterprises, strict measures are in place to prevent any misuse of price-sensitive information in the process.
