Indian Government Initiates Stake Reduction in Public Sector Banks and Financial Institutions
The Indian government has initiated the process of reducing its equity stakes in select public sector banks (PSBs) and listed public financial institutions (PFIs) to comply with the Securities and Exchange Board of India’s (SEBI) Minimum Public Shareholding (MPS) norms. This move aims to bring government ownership in these institutions below 75%, aligning with SEBI regulations that mandate a minimum public shareholding of 25% for all listed companies. State-owned banks have been granted an extension until August 2026 to meet this requirement.
The Department of Investment and Public Asset Management (DIPAM) has issued a Request for Proposal (RFP) seeking merchant bankers and legal advisors to manage the stake dilution process. The empanelment will last for three years, with a possible one-year extension. Empanelment fees are set at ₹1 lakh for merchant bankers and ₹50,000 for legal advisors.
The PSBs identified for stake reduction include Bank of Maharashtra (86.46% government ownership), Indian Overseas Bank (96.38%), UCO Bank (95.39%), Central Bank of India (93.08%), and Punjab and Sind Bank (98.25%). In the insurance sector, the government holds significant stakes in General Insurance Corporation (GIC Re) at 82.4%, New India Assurance Company Ltd at 85.44%, and Life Insurance Corporation (LIC) at 96.5%. LIC has been granted time until May 16, 2027, to achieve the 10% public shareholding threshold.
Sanjay Agarwal, Senior Director at CareEdge Ratings, noted that most of these PSBs currently do not require significant equity infusion due to their robust capital positions. However, he cautioned that the large availability of floating stocks might adversely impact stock prices, and prevailing market volatility could pose challenges in realizing acceptable share prices.
Merchant bankers will be responsible for advising the government on the timing and modalities of the equity dilution, structuring the transactions in compliance with existing regulations, and conducting market surveys. Their role also includes organizing domestic and international roadshows to attract potential investors and highlighting the growth prospects of these financial institutions.
