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Government plans to shed 5-10% of some public sector banks

New Delhi: the government is considering divestment 5 to 10% of the capital of public sector lenders of which it currently holds more than 80% of the capital.

A detailed roadmap should be finalized soon, sources close to the matter said. Government stake exceeds 80% in six state-owned banks – Bank of India, Indian Overseas BankPunjab and Bank of Sindh, Bank of MaharashtraCentral Bank of India And Uco Bank.

The government wants to take advantage of the sharp rise in share prices public sector banks (PSB) which are based on significantly improved financial performance and fundamentals.

The sale of the shares can be done through the offer-for-sale route for lenders who are not inclined to a rights issue, people familiar with the deliberations said. If banks need capital, a follow-on public offering may be considered: the government will sell part of its stakes and the lender will issue new shares in the same proportion.

“Banks will submit their capital raising plans and based on these assessments, a road map can be drawn up for each lender,” an official said, adding that the timing of these issuances will depend on market conditions and could have repercussions on the market. next financial year.

Over the past year, the Nifty power bank the index lost 34% against a rise of 6.9% in the Nifty Private Bank index. The benchmark Nifty 50 index is up 6.4% over this period. On Monday, the Nifty PSU Bank index rose 2.64 per cent, while the Nifty 50 fell 82 points, or 0.42 per cent, to close at 19,443.55. A sale of 10% stake in Bank of India, the largest of the six, can fetch nearly Rs. 4,400 crore at current market value. The government owns 81.4% of the bank.

Privatization in progress
The privatization plans of the two state-owned banks identified for this financial year will continue in parallel and will not be affected by these small stake sales, another official said. “The plan to privatize two utility companies can still be continued if the state’s stake decreases by 5 to 10 (percentage points). There is no conflict between the two,” said another responsible.

The government is also considering exiting IDBI Bank, now classified as a private sector lender.

Minister of Finances Nirmala Sitharaman had announced the privatization of two state-owned banks as part of the government’s disinvestment program in its February 2021 budget speech. Subsequently, in April 2021, Niti Aayog recommended to the disinvestment department the privatization of two state-owned banks. The central Bank of India and Indian Overseas Bank were reportedly shortlisted, but no final decision has been made.

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