Public Sector Bank Disinvestment: The central government is planing ahead with a strategic plan to divest 20% stake in at least five public sector banks (PSBs). A report in Business Standard said that the government is working on a detailed roadmap for the initiative. The Department of Investment and Public Asset Management (DIBAM), the Department of Financial Services and associated banks are all actively participating in the process, said the report.

Reason for the share sale

The government’s desire to reduce its stake in these banks is in line with the Minimum Public Shareholding (MPS) norms set by the Securities and Exchange Board of India (SEBI). As per SEBI guidelines, no promoter of a listed company can hold more than 75% of its shares. As a major owner of public sector banks, the government has to reduce its stake to comply with these regulatory requirements.

Which banks are involved?

The five public sector banks expected to be part of this divestment scheme are:

- Bank of Maharashtra

- Indian Overseas Bank

- UCO Bank

- Central Bank of India

- Punjab and Sind Bank

While reports suggest that these banks have been included in the scheme, official confirmation is still awaited.

The government intends to carry out the share sale using two main approaches-Offer for Sale (OFS) which involves offering shares to retail and institutional investors through the stock exchange and  Qualified Institutional Placement (QIP). That is a method focuses on selling shares only to institutional investors such as mutual funds, insurance companies and foreign institutional investors.

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On February 25, 2025, DIPA had invited bids from commercial bankers to facilitate the sale of shares of public sector banks and financial institutions listed on the stock exchange. The selected commercial bankers will serve for a period of three years, which can be extended for another year if required. They will provide strategic guidance on the timing and execution of the share sale.

Expected Impact of Share Sale

The government's divestment of stakes in these banks is expected to provide several significant benefits:

- Increased liquidity: Availability of more shares in the stock market will enhance trading activities and encourage investor participation.

- Improved transparency: Higher level of public ownership will lead to better corporate governance in public sector banks.

- Additional revenue for the government: Proceeds from the sale will increase government revenue, which can be allocated for economic reforms and development projects.

Given the government's commitment to banking sector reforms, this strategic divestment could boost financial markets, enhance the efficiency of public sector banks, and attract more institutional investors.

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