Finance Ministry asks 5 PSU Banks to decrease Govt shareholding by 1st August

The Finance Ministry has instructed five public sector banks in India to increase their minimum public shareholding to 25% by August 1, in line with regulatory requirements. This directive is part of the Securities Contract (Regulation) Rules, which mandate all listed companies, including public sector entities, to maintain a minimum public shareholding of 25%.

The five public sector banks that have yet to meet this requirement are UCO Bank, Central Bank of India, Punjab & Sind Bank, Bank of Maharashtra, and Indian Overseas Bank. These banks currently have public shareholdings ranging from 1.75% to 13.54%.

Read More - Shareholding Pattern of Government in Public Sector Banks

Nationalized Banks (Government Shareholding %, as at end-March 2023)

1. State Bank of India (57.59%)

2. Canara Bank (62.93%)

3. Bank of Baroda (63.97%)

4. Punjab National Bank (73.15%)

5. Indian Bank (79.86%)

6. Bank of India (81.41%)

7. Union Bank of India (76.99%)

8. Bank of Maharashtra (90.90%)

9. Central Bank of India (93.08%)

10. UCO Bank (95.39%)

11. Indian Overseas Bank (96.38%)

12. Punjab and Sind Bank (98.25%)

Sources familiar with the matter suggest that the Securities and Exchange Board of India (SEBI) may consider granting exemptions to some public sector banks and other public sector undertakings (PSUs) to gradually achieve compliance with the 25% minimum public shareholding norms by August 2024. State-run lenders are reportedly raising capital through Qualified Institutional Placement (QIP), which leads to a dilution of the government’s stake. However, there are currently no plans for a direct share sale in any public sector bank.

It is worth noting that the government’s stake in the five state-run banks exceeds 75%, resulting in unsold government stakes valued at over Rs 65,000 crore at current market prices. Additionally, several other government enterprises, including IRFC and SJVN, also have government stakes exceeding 75%.

In related developments, the central government has divested its holdings in six public sector units (PSUs) over the past year. These include Hindustan Aeronautics Ltd., RVNL, SJVN, Coal India, HUDCO, and NHPC. The shares of four of these companies have already doubled from their Offer for Sale (OFS) floor price.

It is important to note that the Finance Ministry has recently amended the Securities Contracts (Regulation) Rules, 1957 to exempt listed public sector companies from the minimum public shareholding norm. This exemption comes ahead of the three-year timeframe given to listed PSUs to conform to the norm. The amendment allows listed entities to have at least 25% public shareholding, which can be held by anyone other than a promoter, including institutions or individuals.

These recent developments highlight the government’s efforts to ensure compliance with minimum public shareholding requirements and promote transparency in the functioning of listed companies in India.

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Latest Bank merger news of PSU banks and PSU Insurance Company

 

A government document shared on social media has triggered speculation about possible PSU bank mergers between Union Bank and UCO Bank, and Bank of India and Bank of Maharashtra. The document, whose source couldn't be verified, said that a Parliamentary committee will hold discussions with four PSU banks in the first week of January under banking laws, which govern mergers and acquisitions, among other things.

However, the government has not yet provided official information regarding the merger. Neither of the four PSU banks mentioned have made any stock exchange filings in this regard.

The document being circulated on X (formerly Twitter) is a government PDF issued in the name of Ramesh Yadav, Under Secretary of the Government of India. The letter is issued to the Governor, Reserve Bank of India, Chairman of LIC, IRDAI, and NABARD, along with MD and CEOs of UCO Bank, Bank of Maharashtra, Bank of India, and Union Bank of India.

The PDF is also addressed to CMDs of New India Assurance Company, United India Insurance Company, Oriental Insurance Company, National Insurance Company, and MD & CEO of SBI Life Insurance Company. The subject of the alleged government PDF states 'Study Visit programme of the Committee on Subordinate Legislation, Lok Sabha to Mumbai and Goa from 2 to 6 January 2024'.

The 2-day programme includes informal discussions with the representatives of Union Bank of India and UCO Bank on January 2, and with representatives of Bank of Maharashtra and Bank of India on January 4, 2024, on rules/regulations framed under Banking Regulations Act 1949 and other relevant Acts as applicable to them and the regulatory mechanism in post-merger scenario.

The Finance Ministry has reportedly issued a clarification, saying that this is a parliamentary committee on subordinate legislation, and it has no connection whatsoever with the policies of bank mergers, according to CNBC-Awaaz. Amid the merger buzz, the ministry reportedly changed the agenda of its meeting. According to the new agenda, there is no mention of the word “Merger”, which simply means that there is no proposal for a merger between Union Bank of India and UCO Bank, Bank of India, and Bank of Maharashtra, said CNBC Awaaz in its report.

Meanwhile, No proposal to merge the public sector banks is being considered by the government and the discussions were part of a ‘routine exercise, Reuters also reported citing two sources from the Ministry of Finance.

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Latest Bipartite Settlement News - Finmin asks IBA to finalise wage revision of bankers of PSU banks by December 1

The government has asked the Indian Banks' Association (IBA) to initiate the process of negotiations for the 12th Bi-partite settlement in a time-bound manner and to finalise it by December 1, 2023, said a senior official.

The wage revision for employees and officers of the public sector banks is due from November 1, 2022.

The early wage revision would help improve working conditions and incentivise the banking sector employees, the official said.

Further, the official said, the finance ministry has asked IBA to ensure that all future wage negotiations should be finalised before the beginning of the subsequent period so that the wage revision could be implemented from the due date itself.

As a part of the settlement, the IBA is expected to engage in dialogues with the employees' Unions/ Associations and work out to arrive at a mutually agreeable wage settlement.

The government has stressed the importance of fairness and equity in the revision, ensuring that the compensation structure remains competitive with other players in the banking industry, the official said.

"Wage settlement for banks has always been a tedious and time-consuming process with bank managements, represented by IBA, and employees' unions engaging in tough negotiations. Historically, delays of 2-3 years in wage settlement have led to a substantial accumulation of arrears, which are eventually disbursed in a lump-sum.

"This contrasts with the more sustainable approach of integrating the revised wages into the regular monthly salaries," said the official.

Highlighting that the banking sector is the backbone of the Indian economy, the official said it is incumbent upon the management of banks to ensure that employees are adequately compensated and it is necessary for the health and stability of the entire economy as well.

It also comes at a time when the financials of the Public Sector Banks are healthy with the net profits almost tripled to Rs 1.04 lakh crore in FY'23 as compared to Rs Rs 36,270 crore earned in FY'14.

At the same time, the Return on Assets (ROA) in PSBs rose from 0.51 per cent in FY'14 to 0.78 per cent, while Net Interest Margin (NIM) has also increased from 2.73 per cent to 3.23 per cent in FY'23.

Wage settlement talks normally benefit employees of public sector banks, old generation private banks and some foreign banks.

In the previous agreement, 12 state-owned banks, 10 old-generation private sector banks and seven foreign banks signed up. New-generation private banks like HDFC Bank and ICICI Bank are not part of these settlement talks.

The last 11th Bipartite Wage Negotiations concluded after three years of negotiations in 2020 agreed for 15 per cent pay revision for PSBs employees.

Almost 3.79 lakh officers and close to 5 lakh bank employees of PSBs, old-generation private banks and foreign were covered under the wage hike due from November 1, 2017.

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Shareholding Pattern of Government in Public Sector Banks

The Indian government holds just a 57.6% stake in the country's largest lender State Bank of India (SBI), and the highest 98.25% stake in Punjab & Sind Bank as of March 2022, the Rajya Sabha was informed. Ten years ago, the government's stake in SBI was 61.58%, which has come down to 57.59% as of March 2023.

 

Responding to a question on the privatisation of public sector banks (PSBs), Dr Bhagwat Karad, minister of state for finance, says the policy for privatisation of two PSBs was announced in the Union Budget for FY23. "...the objectives of the policy include enablement of growth of public sector enterprises through infusion of private capital, thereby contributing to economic growth and new jobs, and financing of social sector and development programmes of the government."

 

Priyanka Chaturvedi, a member of Parliament (MP), has asked whether the Union government has any plans to dilute its share in PSBs. 

 

While sharing the shareholding pattern of PSBs, Dr Karad clarified that "banks raise equity capital from the market through qualified institutional placements and other routes, which results in dilution of the percentage shareholding of the government of India."

Sr. No.	Name of the Bank	% age of Shareholding
1	Bank of Baroda	63.97
2	Bank of India	81.41
3	Bank of Maharashtra	90.97
4	Canara Bank	62.93
5	Central Bank of India	93.08
6	Indian Bank	79.86
7	Indian Overseas Bank	96.38
8	Punjab National Bank	73.15
9	Punjab & Sind Bank	98.25
10	State Bank Of India	57.59
11	Uco Bank	95.39
12	Union Bank of India	83.49

                                                              AS ON 31.03.2023
According to the data shared by the minister of state, out of the 12 PSBs, the government's stake in five banks remains above 90%. This includes Bank of Maharashtra (90.97%), Central Bank of India (93.08%), Indian Overseas Bank (96.38%), Punjab & Sind Bank (98.25%) and UCO Bank (95.39%). 
The Union government, through the President of India, owns an 83.49% stake in Union Bank of India, 81.41% stake in Bank of India, 79.86% stake in Indian Bank, 73.15% in Punjab National Bank, 63.97% in Bank of Baroda and 62.93% in Canara Bank. 

Ultimately, among the PSBs, SBI, has the highest stake (42.41%) from institutional investors and public shareholders. As of March 2023, the public shareholding, including institutional investors, in SBI was 35.89%, data from BSE shows.

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FM Nirmala Sitharaman to meet chiefs of PSU Banks today; here's what's on agenda

 

Finance minister Niramala Sitharaman on 25 March will meet managing directors of public sector banks (PSBs) in order to review performance against the backdrop of the failure of a few banks in the US and the liquidity crisis faced by Credit Suisse.

Sources told news agency PTI that the meeting is going to take stock of the progress made by banks in achieving targets set for the various government schemes including: Kisan Credit Card (KCC), Stand-Up India, Pradhan Mantri Mudra Yojana (PMMY), emergency credit line guarantee scheme (ECLGS) to help businesses affected by COVID-19.

This will be the first full review meeting after the presentation of Union Budget 2023-24 on 1 February. The banks would also be asked to focus on the areas highlighted by the Budget, including credit flow to productive sectors.

Sources further added that the finance minister will review financial inclusion, credit growth, asset quality, and capital raising and business growth plan of banks for the next financial year. Discussion will also be held on non-performing assets (NPAs) of ₹100 crore and the recovery status.

This meeting comes against the backdrop of global concern over the failure of banks due to aggressive monetary tightening.

The US Fed on Wednesday hiked interest rates by 25 basis points to tame high inflation despite the banking crisis. To fight the persistent hot inflation, the Fed has so far increased rates from zero to 4.75 to 5 per cent, all in just one year.

Taking a cue, both, the Bank of England and the European Central Bank (ECB) have also raised their benchmark interest rates.

Meanwhile, policymakers and experts have said that the Indian banking system is in good shape and can handle the situation caused due to monetary tightening.

Various reforms undertaken by the government have resulted in significant improvement in the asset quality of public sector banks, with the gross NPA ratio declining from the peak of 14.6 per cent in March 2018 to 5.53 per cent in December 2022.

All PSBs are in profit with an aggregate profit of ₹66,543 crore in 2021-22, and that further increased to ₹70,167 crore in the first nine months of the current financial year.

At the same time, resilience has increased with the provision coverage ratio of PSBs rising from 46 per cent to 89.9 per cent in December 2022. The capital adequacy ratio of PSBs improved significantly from 11.5 per cent in March 2015 to 14.5 per cent in December 2022.

The total market capitalisation of PSBs (excluding IDBI Bank, which was categorised as a private sector bank in January 2019) increased from ₹4.52 lakh crore in March 2018 to ₹10.63 lakh crore in December 2022, he said.

The government implemented a comprehensive 4R strategy of Recognising NPAs transparently, Resolution and recovery, Recapitalising PSBs, and Reforms in the financial ecosystem.

Major banking reforms undertaken by the government over the last eight years ensured credit discipline, responsible lending and improved governance, besides the adoption of technology, amalgamation of banks, and maintaining general confidence of bankers.

Yesterday, the Lok Sabha passed the Finance Bill, 2023 with some amendments. Union Finance Minister Nirmala Sitharaman tabled ‘The Finance Bill, 2023’ in the lower house amid sloganeering by Opposition MPs demanding a JPC inquiry into the Adani Group issue. She introduced 64 official amendments to the Finance Bill which was tabled in Parliament on February 1 along with the Budget proposals. 

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IDBI Bank Privatisation: Govt Likely to Invite EoIs in July-End After Discussions with RBI

The central government has been mulling the privatisation of IDBI Bank for quite some time now, and has kept the lender in its list of companies for divestment. The Department of Investment and Public Asset Management (DIPAM) is currently holding roadshows in the US for the sale of the bank, which is set to be another important landmark in reaching India’s divestment targets. The actual quantum of government stake sale at the IDBI Bank will be known once the roadshow is over, the Centre had said earlier in April.

Currently, the government is in the process of holding roadshows in the US, an official was quoted by PTI as saying, on June 10, Friday. After a few more such investor meets, it will finalise the contours of the IDBI Bank stake sale, the official added.

“We may need one more round of discussion with RBI on IDBI strategic sale. The expression of interest (EoI) may be invited by July-end," the official said. It was earlier confirmed by sources that the government may invite EoIs in May for selling its stake in IDBI Bank and expects to complete the disinvestment process in the current financial year 2022-23.

The official said while the quantum of stake dilution of both the government and LIC is yet to be decided, the management control in IDBI Bank will be transferred in the strategic sale.

DIPAM secretary Tuhin Kanta Pandey had in April also said that the EoIs will be invited once the meetings with investors were over. “The quantum of exit will be known post roadshow and then the structure of Expression of Interest will be finalised. One thing is very sure that management control will be passed on. Currently, it is with LIC. But, management control at what level of equity will have to be decided when we have decided the structure of EoI,” Pandey had said in Delhi during an event on LIC IPO roadshow.

The government holds 45.48 per cent stake in the bank, while LIC owns 49.24 per cent. Necessary amendments to the IDBI Bank Act have already been made through the Finance Act 2021, and transaction advisors have been appointed.

The Cabinet Committee on Economic Affairs had given in-principle approval for strategic disinvestment and transfer of management control in IDBI Bank in May last year. “CCEA has given an in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd”, a government had statement said.

In January 2019, IDBI Bank became a subsidiary of LIC, following the acquisition of additional 8,27,590,885 equity shares. In December 2020, IDBI Bank was classified as an associate company due to the reduction of LIC shareholding to 49.24 per cent. The IDBI Bank privatisation efforts come during a time when the government has put off similar plans for Bharat Petroleum.

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Bank privatisation not in one go, govt may retain at least 26% in 2 PSBs

The government may not fully exit from the two state-run banks that are to be privatised and instead retain at least a 26% stake for the first few years. A senior official said the extent of the stake sale will depend on interest from investors and market conditions.

The government will introduce a bill in the winter session of parliament to make the changes needed before privatising the two banks. The Central Bank of India and Indian Overseas Bank have reportedly been shortlisted by Niti Aayog for disposal. However, a final decision is yet to be taken.

"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 said, reasoning that the government may like to cash in on the upside in valuation after the stake sale.

Banking on Better Valuation

A similar strategy is being pursued in the case of state-run BEML (formerly Bharat Earth Movers Ltd), where the government is divesting 26% equity along with management control of the Bengaluru-based company. The government has a 54.03% stake 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," said the official cited above.

The Banking Laws Amendment Bill, 2021, will make changes to the Banking Companies Acquisition and Transfer of Undertakings Act, 1970 and 1980, and incidental 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," said another official aware of developments. IDBI Bank is also on the government's asset-sale list.

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.

Finance minister Nirmala Sitharaman had announced the privatisation of two state-run banks as part of the government's disinvestment programme in her February budget speech. "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 said.

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Govt to amend banking laws to facilitate privatisation of two PSU banks

To facilitate privatisation of two public sector banks (PSBs), the government is all set to introduce a banking laws amendment bill in the upcoming Winter Session starting Monday. Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 earlier this year had announced the privatisation of PSBs as part of disinvestment drive to garner Rs 1.75 lakh crore.

The Banking Laws (Amendment) Bill, 2021, to be introduced during the session is expected to bring down the minimum government holding in the PSBs from 51 per cent to 26 per cent, sources said.

However, sources said a final call in this respect would be taken by the Union Cabinet when it would vet the proposed legislation.

“To effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two Public Sector Banks,” according to the list of legislative business for the Winter Session.

These Acts led to the nationalisation of banks in two phases and provisions of these laws have to be changed for the privatisation of banks, sources said.

In the last concluded session, Parliament passed a bill to allow privatisation of state-run general insurance companies.

The General Insurance Business (Nationalisation) Amendment Bill, 2021, removed the requirement of the central government to hold at least 51 per cent of the equity capital in a specified insurer.

The Act, which came into force in 1972, provided for the acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers in order to serve better the needs of the economy by securing the development of general insurance business.

Government think-tank NITI Aayog has already suggested two banks and one insurance company to Core Group of Secretaries on Disinvestment for privatisation.

According to sources, Central Bank of India and Indian Overseas Bank are likely candidates for the privatisation.

As per the process, the Core Group of Secretaries, headed by the Cabinet Secretary, will send its recommendation to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.

The members of the Core Group of Secretaries include economic affairs secretary, revenue secretary, expenditure secretary, corporate affairs secretary, legal affairs secretary, Department of Public Enterprises secretary, Department of Investment and Public Asset Management (DIPAM) secretary and an administrative department secretary.

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