After the IDBI Bank stake sale, the government is looking at further ownership changes in state-run banks, including stake cuts and potential privatisation. The Centre is considering reducing its stake in four public sector banks - Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank - to 75% to comply with minimum public shareholding norms, according to an Economic Times report on Friday.
The Government of India currently holds an 81.19% stake in Central Bank of India, 90.95% in UCO Bank, 93.85% in Punjab & Sind Bank and 92.44% in Indian Overseas Bank. Reducing its holdings to 75% would require the Centre to dilute its stake in each of these lenders.
The government is also exploring another round of consolidation that could see two more state-owned lenders identified for privatisation, the report said. In the Union Budget for 2021-22, the government had announced plans to privatise two public sector banks and one general insurance company, apart from IDBI Bank.
The proposed stake cuts come as the Centre seeks to advance its disinvestment programme and mobilise resources through stake sales and asset monetisation.
Earlier this month, the government announced that Fairfax Financial Holdings, promoted by Canadian billionaire Prem Watsa, would acquire a 60.72% stake in IDBI Bank for ₹52,878 crore.
Will the deal revive strategic disinvestment?
The IDBI Bank transaction could also influence investor confidence in future strategic sales, including the proposed divestments of BEML, Shipping Corporation of India and NMDC Steel. However, these transactions could take years to execute, said Abhinav Tiwari, senior research analyst at Bonanza.
“The IDBI deal could improve confidence in future strategic sales, including BEML, Shipping Corporation of India and NMDC Steel. However, such transactions can take years,” Tiwari said.
He added that Sebi's minimum public shareholding requirements were putting pressure on government-owned companies to dilute promoter holdings. However, the completion of the IDBI Bank deal does not guarantee similar progress on other strategic sales.
Govt disinvestment set to cross ₹80,000 cr target in FY27
The proposed IDBI Bank transaction is expected to provide a significant boost to the government's disinvestment receipts in FY27. The Centre is targeting ₹80,000 crore through disinvestment and asset monetisation this fiscal and could exceed the target if the transaction is completed.
As of September 10, the government had raised ₹62,124 crore through disinvestment and asset monetisation, including ₹55,757 crore from equity sales and ₹6,367 crore from asset monetisation. The IDBI Bank transaction is expected to contribute around ₹26,000 crore to the Centre's receipts, taking total proceeds to approximately ₹88,000 crore.
The Cabinet Committee on Economic Affairs approved the sale of a combined 60.72% stake in IDBI Bank, held by the government and Life Insurance Corporation of India (LIC), to Fairfax Financial Holdings-backed Canada Inc for ₹52,878.08 crore. The transaction values the shares at ₹81 apiece, with the government selling its 30.48% stake and LIC offloading 30.24%.
If completed in the current financial year, the transaction would mark the first time since FY19 that the government exceeds its original disinvestment target.
The Centre's fundraising efforts have already received a boost from LIC's offer for sale in August, through which it raised nearly ₹31,000 crore by selling a 6.5% stake, including additional shares offered under the greenshoe option. Other stake sales this year included offers in Hindustan Copper, NHPC and NLC India.