The Indian government is contemplating divesting a 5-10% stake in public sector banks where it currently holds over 80% equity, as reported by The Economic Times. The government has ownership exceeding 80% in six banks, including Bank of India, Indian Overseas Bank, Punjab & Sind Bank, Bank of Maharashtra, Central Bank of India, and Uco Bank. This move aims to capitalize on the increased share prices of public sector banks due to improved financial performance.
Public Sector Undertakings (Banks) represent a major segment of government-owned banks in India, wherein a majority stake (i.e., more than 50%) is held by the Ministry of Finance (India) of the Government of India or State Ministry of Finance of various State Governments of India. The shares of these government-owned banks are publicly traded on stock exchanges. The primary aim of these banks is social welfare. The Nifty PSU Bank index has surged by 34% this year, outperforming the Nifty Private Bank index. Bank of India, the largest among the six banks, could potentially generate Rs 4,400 crore from a 10% stake sale at its current market value. Additionally, the government is contemplating an exit from IDBI Bank, now classified as a private sector bank. According to a Mint report, reducing its stake to 26% in two of the mentioned banks could raise Rs 28,000-54,000 crore. The government could raise even more funds by selling stakes in larger public sector banks, with a 6% stake sale in the State Bank of India estimated to fetch Rs 31,395 crore.
Public sector banks (PSBs) have witnessed a robust growth of 9.1% in their assets during the fiscal year 2022-23, driven by a substantial increase in loans and advances. The Central Bank of India and Indian Overseas Bank led with an impressive 20% growth in their loans and advances, while Bank of Maharashtra recorded the highest growth in total assets, as reported by Mint. Furthermore, PSBs demonstrated an improvement in net interest margin (NIM), with a 29 basis points growth during the same period. Notably, the total net profit of public sector banks exceeded Rs one trillion in 2022-23, marking a 57% increase from the previous financial year. State Bank of India (SBI) contributed approximately 50% to this overall profit. The reduction in non-performing assets (NPAs) has also played a role in the positive performance of PSBs, aligning with the government’s 4R strategy of recognition, resolution, recapitalization, and reforms.