Govt eyes stake cuts in 4 PSU banks, including Central Bank, UCO Bank; 2 more in privatisation plan

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The government is considering cutting its stake in four public sector banks - Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank - to 75% to comply with minimum public shareholding norms, an Economic Times report said on Friday.

The Centre is also preparing for another round of consolidation among state-owned lenders, which could see two more banks identified for privatisation, according to the report.

The Union government had announced in the 2021-22 Budget that it would privatise two public sector banks and one general insurance company, apart from IDBI Bank.

Earlier this month, the government announced that Fairfax Financial Holdings, promoted by Canadian billionaire Prem Watsa, would acquire a 60.72% stake in IDBI Bank for Rs 52,878 crore.

The Centre's long-term objective is to have three to four large state-owned banks, The Economic Times reported. NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as potential candidates for privatisation.

Citing an official, the newspaper reported that the immediate priority was to increase public shareholding in the four lenders over the next year. While banks could raise funds from the market according to their individual strategies, the government would consider selling its stake through offers for sale, depending on market conditions.

A higher public float is also expected to improve the lenders' valuations, the report said.

Another official told The Economic Times that the consolidation exercise would consider factors such as technology compatibility, geographical reach and business mix, with banks expected to offer suggestions on the process.

The report added that privatisation would require legislative amendments, including changes to the Banking Companies (Acquisition and Transfer of Undertakings) Act. These could be pursued alongside the consolidation exercise, the official said.

The government had exempted state-owned companies, including financial institutions, from the minimum public shareholding requirement of 25% until August 2026. A further extension is expected to be notified, The Economic Times reported.

In the IDBI Bank privatisation process, the government had clarified that the bank's volatile share price, amid limited trading activity, was not considered representative of its intrinsic enterprise value, the newspaper reported.