Government plans to pare stakes in 4 PSU banks to 75%

The NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as the two candidates for privatisation.

The Union government announced in the 2021-22 budget that, besides IDBI Bank, it would take up two public sector banks and one general insurance company for privatisation. Earlier this month, the government announced that Canadian billionaire Prem Watsa-promoted Fairfax Financial Holdings will acquire a 60.72% stake in IDBI Bank for Rs 52,878 crore. The Centre's long-term intention is to maintain three to four large state-owned banks.

Valuations Expected to Rise

The NITI Aayog had reportedly shortlisted Central Bank of India and Indian Overseas Bank as the two candidates for privatisation.

The greater public float is also expected to improve their valuation.

Queries emailed to finance ministry did not elicit a response till press time. "The aim is to have three or four large banks, and some of the suggestions in this regard have to come from the banks themselves based on factors such as technology compatibility, geographical spread and business mix," said another official, clarifying that privatisation plans will also consider these factors. "Privatising them will require changes in legislation, including the Banking Companies (Acquisition and Transfer of Undertakings) Act, which may be pursued alongside the consolidation exercise," the official added.

The government had exempted state-run firms, including financial institutions, from meeting the minimum public shareholding of 25% public float until August 2026, and a further extension is expected to be notified.

In the case of the privatisation of IDBI Bank, the government clarified that the volatile stock market price of the narrowly traded IDBI stock was disregarded because it did not align the valuation with the enterprise's intrinsic value.