Meeting for the merger and privatization of PSU banks may be held soon by the prime minister's office

                                       

As per the report, the Privatisation of two public sector banks may be discussed. The meeting is likely to discuss bank consolidation, more operational autonomy for boards of state-run banks, raising FDI limits in PSBs to 49 percent from the current 20 percent, and supporting these banks’ need for additional capital.

The inter-ministerial discussions on the reforms in PSU Banks is in the final stages, and once the PMO meeting is concluded, political decisions will be taken closer to the Budget. The Central government is planning to execute its agenda between 2026 and 2028, before the 2029 general elections.

India is considering increasing the foreign investment limit in public sector banks (PSBs) from the current 20% to 49% in an effort to strengthen these banks and make it easier for them to raise capital. As per the information available till now, while higher foreign stakes may be allowed, the government’s shareholding in PSBs will not fall below 51%, thereby ensuring their public sector status. A final decision will be taken at the highest level of government.

Finance Minister Nirmala Sitharaman on November 6 had also confirmed that the government has begun work on the next phase of public sector bank (PSB) consolidation. She said India now needs several big, world-class banks to support the requirements of a fast-growing economy.

As per sources, the government is considering merging Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BoM) with larger banks such as Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI).

The latest merger proposal also follows NITI Aayog’s recommendation to restructure or privatise smaller PSBs such as IOB and CBI. The government’s think tank had earlier suggested keeping only a few large state-run banks — SBI, PNB, BoB, and Canara Bank — while merging or reducing the government’s stake in the rest. The current plan builds on those earlier recommendations but aligns them with today’s conditions. With fintech and private banks growing rapidly, the idea is to position public sector banks strategically instead of spreading them too thin.

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Bank Privatisation News:Government Plans to Decrease Stake in PSU Banks

During the fiscal year 2025–2026, Indian government-owned banks want to sell shares to major investors in order to raise around ₹45,000 crore, or $5.25 billion. According to a senior government source, this would be accomplished through a procedure known as Qualified Institutional Placement (QIP). 

 In the near future, the State Bank of India (SBI), the nation's biggest bank in terms of total assets, will also introduce its QIP. SBI has already authorized plans to raise ₹25,000 crore in equity capital this year earlier in May. By October 2025, the government also intends to finish selling its ownership of IDBI Bank. This is a component of its broader strategy to create money and decrease its holdings in specific public sector banks.

In addition to IDBI Bank and SBI, the government is also preparing to sell shares in the following banks during this financial year: UCO Bank, Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank, Indian Overseas Bank

These stake sales are expected to help the government raise additional funds and increase private participation in public sector banks.

While the actual stake sales are anticipated to start in FY 2026-27, the planning and foundational work will take conducted in FY 2025-26. The government of Prime Minister Narendra Modi stated in this year's Union Budget that it plans to raise ₹47,000 crore by selling its shares in public sector businesses and by selling off government assets. 

 The Inter-Ministerial Group (IMG), a group of ministers and senior officials, reportedly convened on July 8th to choose legal and technical advisors for the stake sale. The Department of Investment and Public Asset Management (DIPAM) and the Department of Financial Services (DFS) served as co-chairs of this group.

Although selling off a stake does not directly constitute privatization, it does eventually result in it. It gradually results in privatization. The government will become less owned as a result of private persons and organizations purchasing its interest. Government ownership will continue to decline with more divestiture, and the bank will be privatized if it drops below 51%. 

 Furthermore, even if the government retains 51% of the business, the remaining 49% is owned by private companies, who attempt to impose their own rules and regulations on government organizations, ultimately introducing a corporate culture.

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Latest Update on Privatisation of Public Sector Banks

The government's intention to privatize two public-sector banks (PSBs) has reportedly been put on hold. The Indian government recently declared its intention to privatize a number of public sector banks. However, since the PSU Banks are now profitable and have exhibited strong performance, the idea has been delayed. 

The following are the primary causes of the delay in bank privatization: 

Public Trust in PSU Banks and Bank Unions

In recent years, PSBs have reported strong financial growth, even outperforming some private banks. Their combined net profit surged to ₹1.41 lakh crore in 2023-24, up from ₹1.05 lakh crore in 2022-23.

Experts had predicted that following the conclusion of the general elections in May 2024, the government would move forward with the privatization of PSU Banks. However, this did not occur. In line with the new Public Sector Enterprise (PSE) policy, which sought to restrict the number of public-sector players in vital industries to four, Finance Minister Nirmala Sitharaman had first declared plans to privatize two PSBs in the Union Budget for 2021–2022. The decision was also meant to encourage general growth and increase competition in the banking industry.

However, the government has yet to finalise the necessary amendments to key laws, including the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 and the Banking Regulation Act of 1949, which are required to facilitate privatisation.

The government finds it difficult to privatize PSU banks. These are very big banks and are vital for the growth of the Indian Economy. Additionally, Indians have faith in public-sector banks. The government and high-ranking officials may have changed their minds in the wake of YES Bank's demise and the current bad press regarding IndusInd Bank. 

 The government has direct control over a number of economic factors through public sector banks. Additionally, through a number of government-sponsored initiatives, the government has brought these public sector banks and the general public together. Private sector banks prioritize making money, and there is concern that they may not be as interested in supporting government initiatives.

Aside from this, employees and bank unions have strongly opposed the privatization plan. Unions contend that by directing public savings into priority industries like agriculture, PSU Banks contribute significantly to the development of the country. India's economy has developed quickly because of these institutions. Strikes against privatization have been threatened by bank unions. This persistent opposition is said to be a major factor in the government's reluctance to proceed with its plans for privatization.

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Good news for Bank Employees about PSU bank Privatisation

In a significant policy shift, the Centre has postponed the privatisation of two public sector banks (PSBs), according to sources. This decision comes amidst indications that the government is reassessing its approach to merging PSBs in the fiscal year 2025 (FY25). The disinvestment pipeline, as per sources, will be influenced by the prevailing market conditions.

Earlier on Wednesday, Finance Secretary TV Somanathan stated that the government will avoid pre-announcing its divestment plans for FY25 to ensure the optimal valuation of public companies. The Union Budget, for the second consecutive year, omitted any mention of ‘disinvestment’, highlighting the Modi 3.0 Government’s focus on enhancing the value of Central Public Sector Enterprises (CPSEs) rather than reducing its equity holdings.

Finance Minister Nirmala Sitharaman has set a disinvestment target of Rs 50,000 crore for 2024-25. However, the Interim Budget presented in February revised the disinvestment estimate for 2023-24 down to Rs 30,000 crore. The Interim Budget for FY2025 included a general category named ‘Miscellaneous Capital Receipts’ under capital receipts, which did not specifically mention ‘disinvestment’. This category comprises receipts from managing equity investments and public assets through various mechanisms.

The government aims to generate Rs 50,000 crore from disinvestment and asset monetization in the current fiscal year, according to DIPAM Secretary Tuhin Kanta Pandey. At a press conference following the Union Budget presentation, Pandey emphasized, “Our focus is on value creation.” This Rs 50,000 crore target under ‘Miscellaneous Capital Receipts’ encompasses various types of receipts, including disinvestment and asset monetization.

In a pre-Budget report, SBI Research suggested that the government should establish a clear policy on PSB disinvestment. The report stressed the importance of a concrete roadmap to attract capital and boost confidence in financial institutions. Additionally, a recent report from CareEdge Ratings highlighted a substantial disinvestment capacity of approximately Rs 11.5 trillion, based on current market capitalizations. This figure assumes the government maintains a minimum 51 percent stake in the public enterprises.

The decision to stay the privatisation of PSBs reflects the government’s strategic shift towards maximizing the value of its public sector enterprises rather than immediate divestment. With a significant disinvestment target and a focus on market conditions, the Centre’s approach aims to balance fiscal goals with market stability and investor confidence.

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The government's long-standing goal of privatizing Public Sector Banks might materialize in FY25.

According to industry insiders, the government's long-pending goal of privatizing some small public sector banks (PSBs) might make some headway in 2024–2025.

"In recent years, the IDBI (Bank) stake sale has taken place. It is possible that additional banks will be privatized this year. According to Chandan Sinha, a former executive director of the Reserve Bank of India, "it has been pending for a long time."

Currently, 12 state-owned banks in India hold around 60% of the total assets inside the banking sector. The process of the government selling its shares in these firms was postponed until the Lok Sabha elections of 2024, despite assurances to the contrary. Finance Minister Nirmala Sitharaman stated in Budget 2020 that the government plans to privatize at least two banks and one insurance company. However, this remained on paper. Industry analysts predict that, given the delay, the government may actively consider first privatizing a few of the smaller PSBs.

A senior PSB executive, who wished to remain anonymous, pointed out that the government has long been discussing privatization and that perhaps it will be given more thought. "The elections put a stop to the process." The government would soon reconsider privatizing some PSBs, the executive speculated.

Sitharaman stated that bank privatization will go according to plan during a May 29 event in Mumbai. As part of the disinvestment push to raise Rs 1.75 lakh crore, she had proposed the privatization of PSBs in 2022 when presenting the Budget 2021–2022.

Since then, the sale of around 61 percent of IDBI Bank has been underway between the Indian government and the Life Insurance Corporation of India (LIC). The Department of Investment and Public Asset Management (DIPAM) stated that it received multiple expressions of interest for the IDBI Bank stake that was up for bid in January 2023 after inviting bids from buyers in October 2022. In order to satisfy the fit and appropriate requirements, bidders must obtain two sets of approvals: one from the Reserve Bank of India (RBI) and one from the Home Ministry for security clearance. Although the sale of stakes in IDBI Bank is ongoing, there is a possibility that other PSBs could soon be privatized.

 

In a previous interview with Moneycontrol, economist Montek Singh Ahluwalia, the head of the former Planning Commission, explained the selection process for privatization, stating that the method will be applied to banks that aren't functioning properly. Ahluwalia stated, "Privatization seems to be limited to small PSBs that are not doing particularly well."

Explaining how banks are chosen for privatisation, Montek Singh Ahluwalia, economist and chairman of the erstwhile Planning Commission, in an earlier interaction with Moneycontrol said that banks that aren’t performing well will be chosen for the process. “Privatisation seems to be limited to small PSBs which are not doing particularly well,” Ahluwalia said.

Arvind Panagariya, the head of the 16th Finance Commission and a former vice chairman of NITI Aayog, the nation's top economic think tank, stated that the privatization of PSBs ought to be a priority for the incoming government during a March 2024 Business Today event. "The banks are doing well and growing right now; their value is unwavering. Now is a favorable moment to privatize. When the government returns in its next term, Panagariya has stated, "I think this is a good time to start seriously privatizing some of the public sector banks."

The Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of India, UCO Bank and Union Bank of India are the country's twelve public sector banks.

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Bank Privatization Update: Government is preparing for privatization of many banks

 

Along with better performance, public sector banks have also reduced bad loans. Meanwhile, the government is busy making new preparations for privatization. A review of the list of public sector banks is being planned by representatives of the Reserve Bank of India along with the Finance Ministry.

According to a Live Mint report, a new panel with representatives from the Finance Ministry, NITI Aayog and the Reserve Bank of India is being considered to prepare a new list of candidates for privatization. NITI Aayog recommended privatization of two public sector banks and its suggestions have also been placed before the Finance Ministry. These two banks are said to be Central Bank of India and Indian Overseas Bank.

It has been said in the report that these two banks were discussed by Finance Minister Nirmala Sitharaman in the budget of 2021-22. Along with this, privatization of IDBI Bank and a general insurance company was also announced. However, due to some reasons this plan was halted and now its exercise is expected to start again in view of 2024.

The central government is considering a panel to identify some of the medium and small-sized banks for privatization. According to the report, the panel can also decide how much stake the government will reduce in banks. Besides, a decision can also be taken on the weightage given to banks having better financial parameters and reducing bad loans.

Before the proposed privatization process, banks have merged weak banks into bigger banks to strengthen small banks. A total of 10 public sector banks were merged from 1 April 2020. There are currently 12 public sector banks in India, up from 27 in 2017.

The 12 PSB banks include State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Punjab and Sindh Bank, Indian Bank, Union Bank of India, Bank of India, Bank of Maharashtra, Central Bank of India, UCO Bank and Indian Overseas. Banks are included.

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No public sector bank privatisation till 2024 general election: Top Government Official

The much-awaited privatisation of public sector banks (PSB) is unlikely to happen before the 2024 general elections, according to a senior government official. "Nothing is going to happen before the 2024 general elections. We don't have legislation yet for it — without that privatisation is not possible," said the official, requesting anonymity.

Amendments would be required to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, for privatisation, the official said, adding that these Acts, which formed the basis for nationalisation of banks in two phases, need to be changed for privatisation.

India currently has 12 public sector banks: Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab & Sind Bank, Punjab National Bank, State Bank of India, UCO Bank, and Union Bank of India.

Bank privatisation has been on the anvil for successive governments but the plan hasn’t progressed due to stiff opposition from trade unions.

Finance Minister Nirmala Sitharaman, while presenting Budget 2021-22, had announced the privatisation of Public Sector Banks (PSBs) as part of the disinvestment drive to garner Rs 1.75 lakh crore.

At that point, the FM had said that other than IDBI Bank, the government proposes to take up the privatisation of two public sector banks and one general insurance company in 2021-22. But, this announcement wasn’t followed up.

"Every government takes the decisions at the right time. So, I don't think that anything is going to happen before the general elections," the finance ministry official quoted earlier added.

According to the official, the IDBI bank case is different because it is not a public sector bank but a ‘private sector’ bank in which the government holds a stake.

United Bank of India; Allahabad Bank became part of Indian Bank; Canara Bank subsumed Syndicate Bank; and Andhra Bank and Corporation Bank merged with Union Bank of India. Earlier, SBI had merged five of its associate lenders with itself, while Vijaya Bank and Dena Bank were merged with Bank of Baroda.

“If the government had gone for privatisation earlier it would not have got good value, as banks were in bad shape. Now, after lots of injection of capital, banks' balance sheets are in good shape,” said Naresh Malhotra, a former State Bank of India senior official.

"If the government does it this time, it will get a good valuation. They can do it. Also, they should wait a little more, so that the situation stabilises a little more. The balance sheets can be better. If you ask me, the government shouldn’t be in banking,” Malhotra added.

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PSU Banks are pillars of economic development, fostering growth, Though in real danger of Privatisation- AIBOC

 

All India Bank Officers' Confederation (AIBOC), the body of bank officers in the country, on Tuesday, said state-run lenders are in "real danger of privatisation" despite playing a crucial role in closing the economic divide in society.

On the occasion of the 55th Bank Nationalisation Day in India on Wednesday, the Guwahati-headquartered body said public sector banks (PSBs) have played an important role in promoting financial inclusion and mobilising savings since the nationalisation of the lenders in 1969.

"Public Sector Banks are in real danger of privatisation. It is an ideological conflict that can be overcome by supporting the alternative ideology that prioritises the welfare of a larger human population," AIBOC general secretary Rupam Roy said.

Since their nationalisation, these PSBs have been channeling funds to vital sectors such as agriculture, small and medium-sized enterprises (SMEs), education, and infrastructure among others, he added.

"They have been the pillars of economic development, fostering growth and providing millions of Indians with access to banking services," the statement said.

AIBOC said as income inequality becomes an urgent issue in society, PSBs play a crucial role in closing the economic divide, ensuring banking access to the underserved segments of society to foster a more equitable economic environment.

"As an appropriate measure to scrutinise the commercial activity of PSBs, the government should consider funding the cost of services rendered by PSBs at market value when it asks them to carry out its social agenda," it added.

Roy in the statement said as the largest shareholder in PSBs, the government is the biggest beneficiary of the dividends paid by the state-run banks out of the profit.

"This is in addition to the corporate taxes and other taxes that all corporations, including PSBs, are required to pay. The per employee customers for SBI is 1,900, whereas for HDFC it is 530 and for Axis Bank it is 325," he added.

Therefore, the norms and benchmarks for these India-specific PSBs must be devised specifically and their performance must be compared and contrasted amongst themselves, the AIBOC official said.

Roy further said the employees of the public sector lenders have played a crucial role in upholding national values and serving citizens with the utmost commitment.

"They have endured a variety of economic cycles, exhibited resiliency, and continued to provide vital banking services uninterrupted even during difficult Covid periods and during calamities," he added.

Roy pointed out that despite their diligent efforts, bank employees face numerous difficulties and the inadequacy of recruitment in PSBs has put a tremendous strain on the existing workforce, depriving them of much-needed leisure and work-life balance.

"In addition, it is of significant concern that pensions for retirees, who have devoted their careers to nation-building, have not been revised and increased on a par with government and RBI employees," he added.

The AIBOC urged policymakers, regulators, and other interested parties to recognise the invaluable contributions of the PSBs and their employees.

"Addressing their legitimate demands and ensuring their well-being is essential to preserving the nationalisation ethos and fortifying our financial sector for a prosperous future," it added. 

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All these government banks will be in the list of Privatization

 The government is likely to set up a panel of experts to prepare a list of Public Sector Banks (PSBs) that can be privatised, report said, quoting people aware of the developments. The centre is looking for ways to privatise PSBs as they have turned profitable and bigger, and fewer in number after several rounds of consolidation.

Previously, in April 2021, NITI Aayog had recommended the disinvestment of two state-run banks to the disinvestment department. Subsequently, the Central Bank of India and the Indian Overseas Bank were chosen for the purpose. However, no further steps were taken in this direction, the report said.

The report quoted a government official as saying, "A new committee may be set up to identify lenders for privatisation, which include mid- and small-sized banks, and determine the quantum of the stake sale based on their performance, including their bad loan portfolio among other parameters."

The panel is likely to have officials from the Department of Investment and Public Asset Management, the Reserve Bank of India, and the NITI Aayog.

Speaking on the matter, a govt official said that bank privatisation was part of a government strategy. However, now that all public sector banks have turned profitable, a reassessment of the situation is required.

The Nifty PSU Bank Index (an index that tracks the performance of PSU bank shares in the stock market) went up 65.4 per cent in the last year. Compared to this, Nifty50 (an index that tracks the broader Indian stock market) only grew 16 per cent.

The proposed privatisation plan is likely to focus on 12 smaller PSBs which may include the likes of Bank of Maharashtra and UCO Bank. Big PSBs like State Bank of India, Punjab National Bank, and Bank of Baroda are not being considered for privatisation.

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IOB, Central Bank divestment on the fast-track

The Centre plans to accelerate the process of privatisation of the Indian Overseas Bank (IOB) and Central Bank of India after the two banks posted good quarterly results, finance ministry sources said. The government’s public policy think tank Niti Aayog has already proposed the names of these two PSBs to the core group of Secretaries on Disinvestment (CGD) for privatisation.

“We had to put a halt to the privatisation process in between because of the protests by bank associations and State elections. But now, after the banks registered positive results in the December quarter, it will gather steam. CGD is assessing the proposal submitted by Niti Aayog, which will then go to the Cabinet committee for final approval,” an official told this newspaper.

Another official pointed out that there is no provision for privatisation of banks in the Bank Nationalization Act. So, an amendment is needed in the Act to privatise the state-owned lenders. “A few amendments have been proposed to the Banking Regulation Act and Bank Nationalisation Act to facilitate the privatisation.

We are trying to make an attractive scheme related to employees’ compensation to avoid strikes,” he added. In the October-December quarter, Chennai-based IOB’s net profit doubled to Rs 454 crore against Rs 213 crore in the year-ago period. In the same period, Mumbai-based Central Bank of India registered a 69% increase in its net profit at Rs 279 crore.

More banks to be identified later

After the completion of the privatisation of IOB and CBI, the Centre will identify other banks for disinvestment in the coming years. The government wants only four large PSBs in the country.

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Bank privatisation to be kickstarted soon

The finance ministry is expected to soon seek cabinet approval for amendments to the Banking Regulation Act, 1949, and possibly other legislation as it kickstarts the process to privatise two state-run lenders. The proposed changes could include the removal of the 20% foreign investment cap applicable to public sector banks in these two cases, a senior government official told ET. A more attractive voluntary retirement scheme (VRS) for employees of these two banks may also be proposed to the cabinet.

Inter-ministerial consultations have been completed on a draft cabinet note on the proposed amendments. "We have incorporated the relevant suggestions and a final proposal will soon be put for final consideration and approval of the cabinet," the official said.

Finance minister Nirmala Sitharaman had in her budget speech last year announced privatisation of two state-run banks as part of the government's disinvestment programme without naming any lenders. Subsequently, in April 2021, the NITI Aayog had shortlisted two banks without identifying them.

Reports suggest that these are Central Bank of India and Indian Overseas Bank.

The government is likely to retain at least 26% of the lenders for the first few years. The extent of the stake sale will depend on interest from investors and market conditions. Foreign investment is limited to 20% in public sector banks under the Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. A higher threshold will make these banks more attractive to investors. This will require amendment to the latter as well as incidental changes to the Banking Regulation Act.

That won't be needed for the separate plan to divest stakes in IDBI Bank. "These changes are not needed in IDBI Bank as it was set up under the Companies Act," said the official cited above. Plans are also underway to invite expressions of interest for the stake sale in IDBI Bank, in which the government and LIC own 45.48% and 49.24%, respectively.

The government had earlier listed the Banking Laws (Amendment) Bill, 2021, in the winter session of parliament to provide the necessary legal framework for privatisation of public sector banks, but it was not moved for consideration, possibly because of the assembly elections in five states. Following victory in four states in the elections, the government is widely expected to press ahead with its reform agenda. Bank unions have opposed the move and sought more public consultation with stakeholders, including workers, before taking any further steps.

Source- The Economic Times

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PSU banks: Any takers?

 

It is reported that after Finance Minister Nirmala Sitharaman’s Budget announcement, the NITI Aayog had suggested a couple of banks for privatisation to the Core Group of Secretaries on Disinvestment headed by Cabinet Secretary in April.

The government is introducing a Bill in Parliament to enable privatisation of PSU banks. Bank unions are opposing the move. It seems the government plans to privatise Indian Overseas Bank and Central Bank of India.

The Bill may be passed but the real challenge will be known only when the government starts executing the move.

Central Bank of India has a market cap of around ₹19,600 crore and Indian Overseas Bank’s (IOB) market cap is at ₹41,100 crore. The government’s holding in Central Bank is 93.08 per cent and in IOB it is 96.38 per cent.

To realise the value as per market price the government should be able to sell these banks for ₹18,200 crore and ₹39,600 crore.

Since private industrial houses are not allowed to own banks, they are not in the fray. So the prospective buyers have to come from the existing private commercial banks or private payments banks and private small finance banks. Some NBFCs may also be in the fray.

Payments banks are already having a tough time as they cannot lend and there is a cap on per customer deposit. As a result many of them are considering to convert into small finance banks. Payments banks and small finance banks do not have the financial muscle to buy PSU banks. When the RBI allowed well run NBFCs with assets of ₹50,000 crore and above and 10 years of operations could be considered for conversion into banks, NBFCs were reluctant to take up that proposal.

So PSU banks are likely to be sold to new generation private banks. But will these banks be interested? The work culture of PSU banks with a huge manpower may deter them.

Apart from profitabilility PSU banks have other objectives such as financial inclusion. Though the government banks also aim for profitability, they predominantly function to serve common man. But the private banks’ main goal is shareholders’ wealth creation. This model results in the government banks having huge manpower strength.

The Finance Minister has assured that PSU banks’ employees interests will be taken care during privatisation. Hence there cannot be any retrenchment of staff and all the existing industrial level wage settlements will prevail.

Staff Issues

As of March 2021, IOB has a staff strength of 23,579 and its business per employee is ₹15.6 crore. Net profit per employee is ₹3.52 lakh. For Central Bank the staff strength is 32,335 and its business per employee ₹15.04 crore. Net loss per employee is ₹2.74 lakh.

Now compare this with private banks. ICICI Bank’s per employee business is ₹16.87 crore and per employee profit is ₹16.40 lakh. The corresponding figures for HDFC Bank are ₹20.54 crore and ₹25.91 lakh.

The government banks have obligation of pension payment to its retirees. Though the banks have adequate pension fund as per actuary estimation to take care of the future obligation, the prospective buyer may not be comfortable as there is some amount of uncertainty of future obligations.

Since the ICICI Bank, HDFC Bank and Kotak Mahindra Bank have huge staff strength, adding more employees and aligning them with the new work culture while buying a PSU bank may be a challenge.

ICICI Bank staff strength is around 98,000 and HDFC Bank staff strength is around 1,20,000. Kotak Mahindra Bank staff strength is around 71,000. So if the government bank is taken over these banks or by any other private banks, the staff addition will be huge and it will be a challenge to transform them all to the new culture.

It is also not clear why the government wants to sell these banks. If it is to mop up resources, then it can very well reduce the government shareholding to just 51 per cent and off load the balance to the public.

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Bank officers’ union launches nationwide movement against privatisation

Bank officers’ union on Tuesday launched nationwide movement against proposed privatisation of stat-owned lenders. ‘Bank Bachao Desh Bachao Rally’ was held at New Delhi’s Jantar Mantar on Tuesday attended by officers and other stakeholders from various parts of the country, the All India Bank Officers’ Confederation (AIBOC) said in a statement.

Addressing the rally, AIBOC General Secretary Soumya Datta appealed to the government to withdraw the Banking Laws (Amendment) Bill, 2021, which has been listed for introduction and passing in the winter session of Parliament.

“In case the government tables and passes the bill paving the way for the privatisation of the public sector banks, the bank officers will unite all the stakeholders of the banking sector and launch a nationwide agitation,” he said, urging the bankers to draw inspiration from the farmers movement.

Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 earlier this year had announced the privatisation of public sector banks (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.

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.

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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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Govt may defer privatisation plans for 2 PSU banks to FY23: Report

 

India’s plan to sell two state-controlled lenders may get deferred to next financial year as the government is yet to seek parliament’s nod for changes in laws required to start the transaction, according to people familiar with the matter.

The Finance Ministry hasn’t finalized modalities to seek approval from lawmakers for the sale, which leaves little time for the process to be completed this year, the people said, asking not to be named as the information is not public. The government will seek buyers for two state-run banks by March 2022, Finance Minister Nirmala Sitharaman had said in February, as she outlined the nation’s budget for the current financial year that began April 1.

A spokesperson for the Finance Ministry could not be immediately reached for a comment.

India’s plan to sell a majority stake in the country’s second-biggest state refiner has also slowed down, and the transaction may only take place early next year rather than in 2021, Bloomberg News reported in July. The administration could still go ahead with other asset sales, including Life Insurance Corp. of India’s initial public offer, that could help the country’s efforts to raise funds to make up for any fall in tax revenues this year.

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HDFC Bank's Q1 net profit rises 16.1% YoY

HDFC Bank reported a net profit of Rs 7,730 crore in the second quarter (Q1) ended June 30, 2021, up by 16.1% year-on-year (YoY) as compared to Rs 6,659 crore in the same quarter last financial year 2020-21 (FY21). The figure was lower than ET Now poll of Rs 7,900 crore.

Net interest income for the quarter under review was up 18% to Rs 17,009 crore as compared to Rs 15,665.4 crore in Q2 FY21 driven by advances growth of 14.4%, and a core net interest margin of 4.1%.

India's largest private lender reported a total income of Rs 36771.47 crore during the June quarter against Rs 34,453.28 crore last year. The bank also recommended a dividend of Rs 6.50 per share in the board meeting held on Saturday.

Gross non-performing assets (NPAs) or bad loans rose sharply 13% quarter-on-quarter (QoQ) to Rs 17,098 crore as compared to Rs 15,086 crore in January-March 2021 quarter. 

Provisions and contingencies for the quarter ended June 2021 quarter were Rs 4,830.8 crore as against Rs 3,891.5 crore for the quarter ended June 30, 2020.

"The country was hit by a second wave of COVID-19, with a significant surge in cases following the discovery of mutant coronavirus strains. While there was an improvement towards the end, business activities remained curtailed for almost two-thirds of the quarter. These disruptions led to a decrease in retail loan origination, sale of third party products, card spends and efficiency in collection efforts. The lower business volumes, coupled with higher slippages, resulted in lower revenues, as well as an enhanced level of provisioning," said HDFC Bank in a statement. 

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Government may shortlist two PSU banks for privatization

 The Centre has shortlisted Central Bank of India (CBI) and Indian Overseas Bank (IOB) for divestment.The two state-run banks might see 51 percent sale in the first phase of disinvestment.

The government will amend the Banking Regulations Act, and some other banking laws for divestment, the news channel reported.

Following the news, shares of CBI and IOB surged 20 percent on June 21.

The weak financial metrics of lenders like CBI and IOB could lead to unexpected hurdles in the government's plan to privatise the lenders, banking analysts.

Both the IOB and CBI are currently under the Prompt Corrective Action (PCA) framework imposed by the Reserve Bank of India (RBI). Under the PCA framework, the central bank imposes certain business restrictions on lenders with weak financial metrics.

The Centre has set an ambitious divestment target of Rs 1.75 lakh crore for FY22.

The government's plans to sell its stakes in Air India, Bharat Petroleum Corporation (BPCL), Shipping Corporation of India and some other companies have been disrupted due to the COVID-19 pandemic

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NITI Aayog submits final list of PSU banks to be privatised

Government think tank Niti Aayog has submitted to the Core Group of Secretaries on Disinvestment the finalised names of PSU banks to be privatised in the current fiscal as part of the disinvestment process, a senior government official said.

Niti Aayog has been entrusted with the task of selection of names of two public sector banks and one general insurance company for the privatisation as announced in the Budget 2021-22.

"We have submitted the names (of PSU banks) to the Core Group of Secretaries on Disinvestment," the official said.

The other members of the high-level panel are 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 administrative department secretary.

Following the clearance from the Core Group of Secretaries, headed by the Cabinet Secretary, the finalised names will go to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.

Changes on the regulatory side to facilitate privatisation would start after the Cabinet approval.

Finance Minister Nirmala Sitharaman had recently said "interests of workers of banks which are likely to be privatised will absolutely be protected whether their salaries or scale or pension all will be taken care of".

Explaining the rationale behind the privatisation, Sitharaman had said that banks in the country needed to be bigger, just like the State Bank of India (SBI).

"We need banks which are going to be able to scale up... We want banks that are going to be able to meet the aspirational needs of this country," Sitharaman had said, adding that a lot of thought had gone behind the intention to privatise some public sector banks.

The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including 2 PSU banks and one insurance company, during the current financial year. The amount is lower than the record budgeted Rs 2.10 lakh crore to be raised from CPSE disinvestment in the last fiscal.

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Cabinet approves strategic disinvestment, transfer of management control in IDBI Bank

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has given its in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd on Wednesday.

"The extent of respective shareholding to be divested by GoI and LIC shall be decided at the time of structuring of transaction in consultation with Reserve Bank of India," said the government in a statement.

To be sure, LIC Board had earlier approved stake dilution, relinquishing of management control in IDBI Bank.

Government of India (GoI) and LIC together own more than 94% of equity of IDBI Bank (GoI 45.48%, LIC 49.24%). LIC is currently the promoter of IDBI Bank with Management Control and GoI is the co-promoter.

LIC’s Board has passed a resolution to the effect that LIC may reduce its shareholding in IDBI Bank through divesting its stake along with strategic stake sale envisaged by the government with an intent to relinquish management control and by taking into consideration price, market outlook, statutory stipulation and interest of policy holders.

This decision of LIC's Board is also consistent with the regulatory mandate to it to reduce its stake in the Bank.

It is expected that strategic buyer will infuse funds, new technology and best management practices for optimal development of business potential and growth of IDBI Bank Ltd. and shall generate more business without any dependence on LIC and Government assistance/funds.

Resources through strategic disinvestment of Govt. equity from the transaction would be used to finance developmental programmes of the Government benefiting the citizens.

Last month, the RBI removed the LIC-controlled bank from its prompt corrective action (PCA) framework, which was imposed in May 2017, after it had breached certain regulatory thresholds, including capital adequacy, asset quality and profitability.

Presenting the Budget on February 1, Finance Minister Nirmala Sitharaman had proposed to take up the privatisation of two state-run banks along with IDBI Bank in FY22.

Meanwhile, IDBI Bank reported a nearly four-fold jump in its standalone profit after tax to ₹512 crore in the March quarter compared to ₹135 crore in the year-ago period on the back of an impressive 38% growth in its net interest income (NII).

The lender also turned profitable on an annual basis after five years as it reported a standalone profit of ₹1,359 crore for 2020-21 fiscal that ended in March as against a loss of ₹12,887 crore in FY20. On a consolidated basis, the lender reported a net profit of ₹547.93 crore for the January-March quarter as against ₹165.69 crore in the year-ago period.

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