Govt may sell stake in IDBI Bank in FY21 but no decision yet on other banks

The government intends to go ahead with its proposed stake sale in IDBI Bank in the current fiscal and there is no decision as yet on privatising more banks, a finance ministry source said on Saturday.

The statement comes amid growing speculations about the government privatising more banks, including Uco Bank, Punjab & Sind Bank and Bank of Maharashtra, following reported recommendations by Niti Aayog.

The central bank also reportedly made a pitch for the government to pare down its stake in certain state-run banks to 26%.

The government held a 47.11% stake in IDBI Bank as of June 2020, while LIC is the promoter of the bad loan-laden lender with a 51% stake. The Centre has set a disinvestment target of Rs 2.1 lakh crore for the current fiscal. Of this, Rs 1.2 lakh crore will come from divestment of public sector undertakings.

The rest Rs 90,000 crore is expected to come from stake sale in financial institutions like LIC and IDBI Bank.

The centre will also come out with a list of strategic sectors soon. If banks feature in that, there could be scope for further amalgation or privatisation of state-run banks. “However, it will all depend on which sectors are finally part of the strategic sector list. The Cabinet will soon take a call on this issue,” said the source. Similarly, no final decision has been made yet on the quantum of the government’s stake dilution in insurance behemoth LIC, added the source.

Once a sector is declared strategic, a maximum of four state-run companies will be allowed in it, the government recently announced. Already, thanks to a series of amalgamations in recent years to create a few lenders with much stronger balance sheets, the number of state-run banks has been reduced from 27 in 2017 to just 12 now.

Despite the enormous challenges posed by the Covid-19 outbreak, the government is working on completing the stake sale process of about 23 public sector companies, divestment in which has already been cleared by the Cabinet, finance minister Nirmala Sitharaman said earlier this week.