The government might not completely exit from the two state-run banks which are to be privatised and rather retain almost 26% stake for the first few years. A senior official stated that the extent of the stake sale will be dependent on interest from market conditions and investors.
The government will now introduce a bill in the upcoming winter session of parliament to make necessary changes that are needed before privatising the 2 banks. The Indian Overseas Bank (NSE -3.13%) and The Central Bank of India (NSE -2.85%) have apparently been shortlisted for disposal by Niti Aayog. However, no final decision has been taken yet.
“The upcoming bill will clear decks for regulatory approvals required for privatisation of two PSBs (public sector banks) but we may like to retain some stake and dilute it at a later stage,” the official stated, stating that the government might likely to cash in on the upside in valuation after the sale of the stake.
Better valuation banking
A same strategy is being used in the case of state-run BEML (formerly Bharat Earth Movers Ltd), where the government is depriving 26% equity beside with management control of the Bengaluru-based company. The government has a stake of 54.03% in the company. “The required changes in the (banking) laws have been vetted by the law ministry. We will soon take it to the cabinet so that it can be taken up by parliament,” stated by the official cited above.
The Banking Laws Amendment Bill, 2021, will certainly make changes to the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 and 1980, and subsidiary amendments to the Banking Regulation Act, 1949.
“In case of IDBI Bank as well we have said that the extent of respective shareholding to be divested will be decided at the time of structuring of transaction in consultation with the Reserve Bank of India,” stated by another official who is aware of developments. IDBI Bank is even on the government’s list of asset-sale.
He said, “parallel consultations are on with the banking regulator, the Reserve Bank of India (RBI), for relaxations in ownership and management criteria. These are aimed at allowing the banks being divested to make room for a wider pool of bidders such as non-banking finance companies (NBFCs) that are owned by corporate groups.”
Nirmala Sitharaman Finance minister had declared the privatisation of two state-run banks as lump of the government’s disinvestment programme in her budget speech in February. “Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22,” she had added while saying.