Government to Begin Stake Sale Process in 5 PSU Banks, Will Banks be Privatised?

There is a big news related to privatisation of public sector banks and divestment of Government stake in Public Sector Banks. The government is preparing to sell a small portion of its ownership in five public sector banks. A key meeting was scheduled for July 8 at noon, where a group of senior officials finalised the appointment of transaction advisers for this process.

Government will reduce stake in which Banks?

The Government of India has decided to reduce stake in these 5 Public Sector Banks.

• Bank of Maharashtra
• Indian Overseas Bank (IOB)
• UCO Bank
• Central Bank of India
• Punjab and Sind Bank

The Government of India currently holds following stake in these Banks:

• Bank of Maharashtra – 86.46%
• Indian Overseas Bank – 96.38%
• UCO Bank – 95.39%
• Central Bank of India – 93.08%
• Punjab and Sind Bank – 98.25%

July 8 Meeting

According to sources, a group of ministers and top bureaucrats — called the Inter-Ministerial Group (IMG) — met to appoint both technical and legal advisers for the stake sale. This group was co-chaired by the Department of Financial Services (DFS) and the Department of Investment and Public Asset Management (DIPAM).

These advisers will play a crucial role in Handling legal and financial complexities, Planning how the shares will be sold in phases, Preparing official offer documents for the sale.

Appointing advisers is the first major step in any disinvestment process. These experts will:

• Conduct background checks and due diligence
• Structure the deal to suit market conditions
• Assist with official approvals and documentation

How Will the Stake Sale Happen?

The government is planning a phased and market-linked sale, which means it will sell a small portion first and then move forward depending on market conditions. To manage the actual selling process, merchant bankers are being shortlisted in two categories:

• Category A – for deals worth less than ₹2,000 crore
• Category A+ – for deals above ₹2,000 crore

Once advisers are selected, the next steps will include:

• Valuing the banks
• Deciding how much stake to sell
• Getting all necessary permissions

Timeline

• The groundwork and planning will happen during FY 2025-26.
• Actual stake sales are expected to begin in FY 2026-27.

Privatisation of Public Sector Banks

While divestment of stake is not considered privatisation, but it eventually leads to privatisation. The stake of government will be purchased by the private individuals/entities which will lead to decrease in ownership of the government. If more divestment is done, the ownership of government will further decrease and if ownership of government falls below 51%, the bank will be privatised.

In the Union Budget 2021-22, the government had announced plans to privatise two public sector banks — Indian Overseas Bank and Central Bank of India. However, that plan has not moved forward. Now, the government is taking a more cautious route by diluting stakes without giving up control, showing that reforms are still on the agenda.

Earlier, the government had announced that only 4 banks will remain under government control and rest all will be privatised.