NEW DELHI: The Centre may disinvest minority stakes in five public sector banks (PSBs) if they fail to comply with the minimum public shareholding (MPS) norm by raising fresh capital from the market in a year, official sources told FE.
According to the Securities and Exchange Board of India (Sebi) rules, a company is required to have an MPS of 25% within three years after listing. The government last set a deadline of August 2024 for these five PSBs – Central Bank of India, Indian Overseas Bank, Bank of Maharashtra, UCO Bank and Punjab & Sind Bank – to meet the MPS norm.
“With their strong balance sheets and better market valuation now, the PSBs have been asked to work out their equity capital raising plans to meet MPS. Extension to meet MPS can’t be for an indefinite period as it sends a wrong message to the market,” a senior official said.
The government may once again extend the timeline for these banks by another year to meet MPS, sources said. If any of these banks don’t need capital, the government could sell a minority stake in them at an appropriate time.
Currently, the public holding in Punjab & Sind Bank is as low as 1.75%, Indian Overseas Bank at 3.62%, UCO Bank at 4.61%, Central Bank of India at 6.92% and Bank of Maharashtra at 13.54%.
The high government holding in these banks is partly due to capital infusion by the government between FY17 and FY22 to help them tide over stress on their balance sheet due to the rise in non-performing assets (NPAs).
The government stake in four banks is more than 90%. Punjab & Sind Bank at 98.25%, followed by Indian Overseas Bank (96.38%), UCO Bank (95.39%) and Central Bank of India (93.08%). So, it seems difficult for them to dilute 18% to 23% through Qualified Institutional Placements (QIPs) to meet MPS on their own in a year going by their track record.
“Capital raising by the PSBs also depends on their need for capital to grow business and meet capital adequacy norms. If they don’t need more capital, then the Centre can monetise some of its holding in these banks to help bring down government holding to 75%,” another official said.
Minority stake sales in PSBs by the government would add to its non-tax and non-debt receipts of the Centre.
PSBs in recent years have been using the QIP route to raise capital to dilute the government stake. In March this year, the state-run Union Bank raised Rs 3,000 crore through QIP which helped the bank raise public holding from 23.01% to 25.24%.
While the timeline for achieving 25% MPS for listed companies was 2013, it was extended for state-run companies multiple times due to a lack of efforts from them towards compliance. In 2021, the Centre empowered itself to exempt selected public sector companies from the 25% MPS norm.
Unlike in the central public sector enterprises (CPSEs), the Centre was not disinvesting minority stakes in PSBs to give them enough headroom to raise capital to meet their capital adequacy requirements to expand business without depending on the exchequer.
To improve the condition of PSBs due to the sharp rise in their non-performing assets, the government infused nearly Rs 3.5 trillion of capital and implemented several governance-related reforms between FY17 and FY22. The PSBs are now seeing strong profitability after improving their asset quality.
Asset quality has improved significantly with the gross NPA ratio of PSBs declining from a peak of 14.6% in March 2018 to 3.87% as of March 31, 2023.
The government’s extant new public sector enterprises policy clearly states that the government will reduce the number of banks in due course to a minimum from twelve now.
The proposed sale of IDBI Bank, an erstwhile public sector bank, is seen as a test case for the government to undertake PSB privatisation in due course.
Source: The Financial Express