The Indian government is actively formulating a strategy, working alongside the Department of Investment and Public Asset Management (DIPAM), the Department of Financial Services (DFS), and public sector banks.
A recent media report suggests that the government is considering selling up to 20% of its stake in five public sector banks (PSBs) over the next four years. While the government claims this move could stimulate the economy, there are growing concerns that it might actually prove disastrous in the long run.
The primary goal behind the stake sale is to meet the Securities and Exchange Board of India’s (SEBI) minimum public shareholding requirement, which mandates that listed companies must have at least 25% of their shares held by the public.
According to a senior government official cited in the report, the government is collaborating with DIPAM, DFS, and state-owned banks to finalize the plan. The official stated, “This decision is in line with SEBI’s minimum public shareholding norms. While market conditions will be taken into account, the government intends to use both the offer for sale (OFS) and qualified institutional placement (QIP) methods.”
The five banks that are likely to see a reduction in government ownership include Bank of Maharashtra, Indian Overseas Bank, UCO Bank, Central Bank of India, and Punjab and Sind Bank. The plan is to gradually reduce the government’s stake in each of these banks to below 75%.
On February 25, it was also reported that DIPAM had solicited bids from merchant bankers to help facilitate the stake sale in these public sector banks, as well as other publicly listed financial institutions. The Request for Proposal (RFP) issued by DIPAM specifies that the selected merchant bankers will be enlisted for three years, with the possibility of an additional year.
Despite the immediate revenue benefits, there are concerns about the long-term consequences of this move. While the government may gain some short-term revenue, there is a growing fear that transferring control of critical financial institutions to private hands could weaken the government’s influence, making it less able to steer the economy during challenging times. Many argue that this shift might undermine the public sector’s role in ensuring financial stability and inclusive growth.
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