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Why's govt keen on keeping 26% stake in PSBs it wants to privatise

The govt is set to privatise two state-run banks, but may hold on to a 26 per cent stake. What merits does the government see in this stake and will this complicate its efforts to attract investors?

Banks privatisation | Govt stakes sell | public sector banks

Krishna Veera Vanamali  |  New Delhi 

The Centre is tabling a Bill in the upcoming winter session of Parliament beginning November 29 to amend two banking laws. Amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980, and the Banking Regulation Act, 1949, will pave the way for privatisation of two public sector banks, as announced in the Union Budget in February. It is being speculated that Indian Overseas Bank and the Central Bank of India are most likely to go under the hammer. The Centre owns more than 90 per cent in both these banks. Business Standard on Friday reported that the Centre may continue to hold at least 26 per cent stake in these banks for now. The quantum of the initial stake sale will be decided while finalising the contours of the transaction. It would mean an about turn in the government’s privatisation strategy, after its successful sale of Air India to the Tata Group. The national carrier had failed to attract any bidders in 2018 when the government tried to offload 76 per cent stake in it.

This prompted the government to offload its entire 100 per cent stake, for which it received buyers from all the quarters. Earlier, the government had reaped a bonanza by following a similar model with its sale of a 45 per cent stake in Hindustan Zinc to Vedanta in 2002 and 2003, along with the transfer of management control. The 30 per cent stake the government retained is today valued at Rs 42,000 crore. It may be looking to cash in on a similar upside in the privatised banks in the future as a strategic buyer is expected to bring in improved efficiency. With a 26 per cent holding, the government would have the power to propose or block special resolutions. But if it can give up its other powers that it enjoys under various laws, private buyers will be more than interested to control a bank. So far, it looks like the government is on the right path.

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First Published: Mon, November 29 2021. 08:15 IST