Government mulls entire stake sale in two banks to woo investors

The government is open to the idea of offloading its entire equity in the two state-run banks that are proposed to be privatised, instead of the initial plan to retain a 26% stake, to garner greater interest from potential investors, a senior official told FE.

NITI Aayog has already recommended the privatisation of Indian Overseas Bank (IOB) and Central Bank of India (CBI), although the government is yet to formally name the sell-off candidates. The government holds 96.38% in IOB and 93.08% in CBI.

The Banking Laws (Amendment) Bill, which is expected to be introduced in the monsoon session of Parliament to facilitate privatisation, may propose that the minimum government holding in the select public-sector banks (PSBs) be trimmed to zero from the current 51%.

FE had earlier reported that while the Banking Laws (Amendment) Bill, 2021, might propose that the government retain at least 26%, the Centre was willing to shed its entire stake in the select banks should the investors so demand.

The proposal gathered traction days after a team of officials from the Department of Investment and Public Asset Management (Dipam) held talks with investors during the road shows in the US earlier this month for the government’s stake sale in IDBI Bank.

The Banking Laws (Amendment) Bill, 2021, was listed as part of the legislative business for the winter session of Parliament that concluded on December 23, 2021. However, the government deferred the bold plan amid fierce protests by bank unions ahead of polls in key states like Uttar Pradesh (which are over now).

Late last month, financial services secretary Sanjay Malhotra said the government was at an advanced stage of finalising plans to privatise two state-run banks in sync with the Budget announcement.

The Bill proposes to “effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949”. These laws had led to the nationalisation of banks, so relevant provisions of these laws have to be changed to pave the way for privatisation.

Already, Parliament has cleared a bill to facilitate the privatisation of state-run general insurance companies by removing the requirement for the central government to hold at least a 51% stake in an insurer.

Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer. Neither has taken off so far.

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