The Centre is considering cutting its stake in four public sector banks to 75% so that they meet the market regulator's minimum public shareholding rule, according to a report by The Economic Times. The four lenders in focus are Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank, where the government still holds far more than three-fourths of the equity.
The move, if it goes ahead, would put more shares of these banks in the hands of the public over the next year, and could be followed by a fresh round of bank mergers and possible privatisation of two lenders.
Why the government needs to sell
Under SEBI's rules, every listed company must have at least 25% public shareholding. Most private companies follow this norm, but state-owned companies, including public sector banks, have been given repeated exemptions from the deadline. The latest relaxation for state-run firms and financial institutions ran until August 2026, and a further extension is expected to be notified.
The four banks named in the report have stayed well above the 75% government holding mark after years of capital infusions from the Centre, which were needed when they were struggling with bad loans. With their balance sheets now healthier, the government sees room to bring them in line with the rules.
How the stake could be reduced
There are two broad ways the government's holding can come down:
- Banks raise fresh capital from the market through share sales to institutional investors. This dilutes the government's percentage without it selling a single share.
- Offer for sale (OFS) by the Centre, where the government directly sells part of its holding through the stock exchange. The report says this could be considered depending on market conditions.
The first route strengthens the banks' capital base, while the second brings money into the government's disinvestment kitty. In practice, a mix of both is possible.
PSU bank stake sale plan: key facts
| Banks in focus | Central Bank of India, UCO Bank, Punjab & Sind Bank, Indian Overseas Bank |
| Target government stake | 75% |
| Rule being met | SEBI minimum public shareholding of 25% |
| Timeline | Over the next year |
| Possible routes | Bank-led share sales, government offer for sale |
| Also being discussed | New round of PSU bank consolidation, two banks for privatisation |
| Report source | The Economic Times |
Mergers and privatisation back on the table
The stake dilution is only one part of a larger reshuffle being discussed. The Centre is reportedly exploring another round of consolidation among state-run banks, with factors like technology compatibility, geographic presence and business mix to guide any future mergers. Banks are expected to send their own suggestions.
The government is also said to be working on identifying two banks for possible privatisation. NITI Aayog had earlier named Central Bank of India and Indian Overseas Bank as candidates. However, privatisation would require changes to laws such as the Banking Companies (Acquisition and Transfer of Undertakings) Act, which means it would need parliamentary approval.
The 2021-22 Union Budget had first announced the plan to privatise two public sector banks and one general insurer, in addition to IDBI Bank. Earlier this month, Fairfax Financial Holdings' acquisition of a 60.72% stake in IDBI Bank for ₹52,878 crore was announced, bringing that long-running sale to a close. The long-term aim is reported to be a smaller set of three to four large state-owned banks.
What it means for investors and customers
For stock market investors, a larger free float in these banks usually means better liquidity and could bring them into more index and fund portfolios. At the same time, the prospect of fresh share supply sometimes weighs on prices in the short run, so traders tend to watch the timing and discount of any sale closely.
For depositors and borrowers, nothing changes immediately. The government will remain the majority owner with 75%, deposits remain covered by the usual deposit insurance up to ₹5 lakh per depositor per bank, and day-to-day banking services continue as usual.
What happens next
No final decision has been announced so far. Watch for the notification on extending the shareholding exemption, board approvals for fund-raising at the four banks, and any OFS announcements by the Department of Investment and Public Asset Management. Any progress on privatisation would first show up as legislative amendments in Parliament.
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