"The government is essentially a major shareholder. So, this need to be aligned to the best corporate practices. The shareholding needs to come down to at least 52 per cent in the first phase. As and when market condition allows, banks will take step in that direction. They have all the permission in hand," Financial Services Secretary Rajiv Kumar told PTI.
Dilution of government stake will help banks to meet 25 per cent public float norms of market regulator Sebi. Some of the public sector banks have government's holding beyond 75 per cent.
Besides, it will encourage the banks to follow the prudential lending norms.
The country's largest lender State Bank of India (SBI) has already initiated step for Rs 20,000 crore share sale through qualified institutional placement (QIP). Post QIP, the government stake will be diluted from the existing 58.53 per cent.
Last month, shareholders of the bank approved sale of shares to fund the business growth.
Many other banks are planning to raise capital through some means or other, depending on the market condition.
Some of the lenders like Syndicate Bank, Union Bank of India, Punjab National Bank, and Oriental Bank of Commerce among others have already issued or in process of issuing Employee Share Purchase Scheme (ESPS).
He further said the government has also initiated the process for consolidation of Regional Rural Banks (RRBs) to better serve the needs of the rural India.
Recently, the Centre has amalgamated three RRBs -- Punjab Gramin Bank, Malwa Gramin Bank and Sutlej Gramin Bank -- into a single RRB with effect from January 1.
The central government, after consulting the sponsor banks of the three RRBs, felt that in the interest of the banks and the areas served by them, they should be amalgamated into a single RRB.
Besides, Punjab Gramin Bank (PNB), and Uttar Bihar Gramin Bank (UCO Bank) has been amalgamated with Madhya Bihar Gramin Bank (PNB).
While the consolidated RRB in Punjab is called Punjab Gramin Bank, with headquarters at Kapurthala, the one in Bihar has been rechristened as Dakshin Bihar Gramin (based in Patna).
These banks were formed under the RRB Act, 1976 with an objective to provide credit and other facilities to small farmers, agricultural labourers and artisans in rural areas.
Currently, the Centre holds 50 per cent in RRBs, while 35 per cent and 15 per cent are with the concerned sponsor banks and state governments, respectively.