UCO Bank, Punjab & Sind Bank, and Indian Overseas Bank—where government ownership currently exceeds 95%—may carry out multiple rounds of QIPs in the coming fiscal, subject to market conditions, as part of a phased approach to meeting regulatory requirements, the people added.
The Securities and Exchange Board of India (Sebi), which mandated a 25% minimum public shareholding (MPS) for all listed companies in August 2024, granted public sector banks (PSBs) until August 2026 to comply with the norm while giving Life Insurance Corporation of India (LIC) until 16 May 2027 to reach 10% public shareholding.
As of 31 December 2024, seven of the 12 PSBs—State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Indian Bank, Union Bank of India, and Bank of India—had met Sebi’s MPS requirement.
Bank of Maharashtra and Central Bank of India have yet to take steps to reduce the government’s stake below 75% to achieve compliance.
Timing the market
State-run lenders have raised capital through QIPs in the past. During 2025-26, the process may become more structured, with banks undertaking larger capital-raising exercises, the first person said on the condition of anonymity.
“However, there are currently no plans for a direct share sale in the market via an offer for sale (OFS) or a public offering for any PSB,” the person added.
“The government has allowed PSBs to explore equity dilution this year and time their market offers strategically. While the exact quantum will be determined closer to the offers, the stake sale is expected to range between 5-10% of paid-up equity capital this year, with further divestment staggered over the next few years,” the person added.
If required, the first person clarified that these PSBs may seek more time to comply.
The first person said that having received government equity support during periods of high non-performing assets and capital erosion, PSBs—now financially stronger—are expected to raise capital independently from the market to strengthen their business further.
“The government’s push for PSBs to raise funds independently, leveraging their improved financial health, means that capital raised through QIPs can bolster capital adequacy, enhance provisioning, expand lending, and facilitate bad debt write-offs,” the person added.
Spokespersons of the ministry of finance and the concerned PSBs didn’t respond to Mint‘s emailed queries.
Long-term strategy
“Reducing its stake in PSBs can improve market perception, potentially boosting their valuation and ultimately benefiting both the government and the public. With PSBs demonstrating impressive overall growth in recent years, this move presents a golden opportunity for investors to participate in the growth story of these legacy institutions,” said Vaibhav Kakkar, senior partner at Saraf and Partners.
Though the move would help PSBs achieve regulatory compliance and mobilize government resources, it doesn’t address the question of where PSBs are headed, said Samir Ojha, partner-investment banking advisory at EY India.
“The government’s long-term objectives can well be served with fewer PSBs, each with a greater scale and reach. Towards this end, the government should consider strategic divestment of controlling stakes to large global banks, enabling access to large new capital pool for the banking system,” Ojha added.
The Union Budget 2025-26 has pegged miscellaneous capital receipts, including disinvestment and asset monetization, at ₹47,000 crore for 2025-26. In line with the practice since 2024-25, the government has not given any specific annual disinvestment target.
The government budgeted ₹50,000 crore in capital receipts for the current fiscal year. However, it revised the receipts to ₹33,000 crore as several disinvestment and monetisation programmes did not take off.
The government owns 93.08% in Central Bank of India, 79.60% in Bank of Maharashtra, 95.39% in UCO Bank, 98.25% in Punjab & Sind Bank, and 96.38% in Indian Overseas Bank.
The government’s shares that must be sold in the five PSBs to meet the minimum public shareholding are valued at approximately ₹50,000 crore at current market prices, with Indian Overseas Bank alone accounting for around ₹20,000 crore.
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