PSU Bank Privatization: The government is considering reducing its stake in four PSU banks to 75%. These include Central Bank of India, UCO Bank, Punjab and Sindh Bank and Indian Overseas Bank. The move aims to increase the stake of ordinary investors in these banks to at least 25% as per stock market rules. Along with this, the government is also working on the next plan of merger of public sector banks. Two more banks can be selected for privatization under this scheme. However, the final decision has not been taken yet.

Preparation to sell stake in four state-owned banks

According to a report by the Economic Times, the first priority of the government is to increase the share of ordinary investors in these four banks in the next one year. For this, banks can raise money from the stock market as per their requirement. At the same time, depending on market conditions, the government may also sell its stake through an Offer for Sale (OFS). Under OFS, the government sells some of its shares to investors.

According to stock market rules, at least 25% stake in listed companies must be held by general investors. The government had exempted financial institutions, including government companies, from this rule till August 2026. According to officials, a notification to extend this exemption is also expected to be issued. The government believes that valuations of these banks may improve as more shares are available in the market.

Privatization of two banks is also being brainstormed

The government does not want to limit itself to reducing its stake in just four banks. The next round of mergers of public sector banks is also being planned. Two more banks are likely to be selected for privatisation. Earlier, NITI Aayog had selected Central Bank of India and Indian Overseas Bank as possible candidates for privatisation. However, no final decision has been taken yet regarding the privatization of these banks.

Apart from IDBI Bank, the central government announced the privatization of two public sector banks and a general insurance company in the budget for the financial year 2021-22. Now the government is working on further plans in the same direction. According to officials, changes in laws will also be necessary to privatize banks. This may include changes related to the Banking Companies (Acquisition and Transfer of Undertakings) Act.

Aim to have only 3-4 large state-owned banks in the country

The long-term plan of the central government is to have three to four large public sector banks in the country. For this, the merger of government banks is being considered. According to the report, the decision of which banks will be merged will be based on several factors. It includes the technological system of banks, their presence in various sectors and the way of doing business. The government wants suggestions from the banks regarding the merger as well. After this it can be decided which banks would be better to bring together.