Government Approves Fund Raise Plan for 5 Public Sector Banks

Bank of India’s Managing Director and CEO, Rajneesh Karnatak, stated on 21 February that the Central Government could further reduce its stake in public sector banks (PSBs). This move comes as lenders anticipate an increased capital requirement to support economic expansion. His remarks were made during a panel discussion at the IIM Kozhikode-NSE 2nd Annual Conference on Macroeconomics, Banking, and Finance.

Government’s Strategy for Stake Reduction

The government has approved fund-raising plans of up to ₹10,000 crore for 5 PSBs through Qualified Institutional Placement (QIP) and Offer-for-Sale (OFS). The approved QIP amount stands at ₹2,000 crore per bank, covering Indian Overseas Bank, Bank of Maharashtra, Punjab & Sind Bank, UCO Bank, and Central Bank of India. These fund-raising measures will be executed in phases starting from the current financial year. The Department of Investment and Public Asset Management (DIPAM) has been tasked with stake divestment through OFS to enhance public shareholding.

Meeting Regulatory Requirements

The Securities and Exchange Board of India (SEBI) mandates all listed companies to maintain a minimum public shareholding of 25%. While the original deadline for PSBs to comply was 1 August 2024, it has now been extended to 1 August 2026. Indian Overseas Bank’s MD and CEO, Ajay Kumar Srivastava, stated that the bank aims to reduce the government’s stake by 2-2.5% through a ₹2,000 crore QIP in the fourth quarter of the current financial year. Similarly, Bank of Maharashtra’s MD and CEO, Nidhu Saxena, expressed confidence in meeting the minimum public shareholding norm after the second tranche of QIP in the next financial year.

Conclusion

The government is gradually reducing its stake in public sector banks to facilitate additional capital infusion and align with SEBI’s public shareholding norms. These strategic moves are expected to support the banking sector’s growth while maintaining regulatory compliance.

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