Government to Fast-Track Disinvestment in 5 PSBs, Including UCO Bank and Bank of Maharashtra, via QIP and OFS

In a renewed push for banking reforms and capital optimisation, the Indian government is expediting its disinvestment programme across five public sector banks. The stake sales will be conducted through Qualified Institutional Placement (QIP) and Offer for Sale (OFS) routes, as part of its broader strategy to fortify financial stability and reduce state ownership.

Disinvestment: Government Plans Stake Sale in 5 Public Sector Banks

According to a CNBC Awaaz report, the Centre plans to offload up to 20% stake in each of the following 5 public sector banks: UCO Bank, Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank, and Indian Overseas Bank (IOB). The entire process is expected to be completed within the next 6 months, marking an aggressive move in public asset monetisation efforts.

QIP and OFS as Primary Routes for Disinvestment

The equity dilution will take place through two market-friendly mechanisms: Qualified Institutional Placement (QIP) and Offer for Sale (OFS). Both routes allow the government to sell shares to institutional investors while ensuring market-based price discovery. The use of QIP aims to attract registered institutional buyers, whereas OFS is enabled through stock exchanges with greater market visibility.

Merchant Bankers Appointment Underway

The finance ministry is reported to be in the final stages of appointing merchant bankers to handle the execution of these transactions. The involvement of merchant bankers is pivotal in strategising the share placement, investor outreach, roadshows, and regulatory compliance aspects associated with large-scale disinvestments.

₹2,500 Crore Target from UCO Bank Divestment

In the case of UCO Bank, the government plans to raise up to ₹2,500 crore by selling around 10% of its stake. This targeted amount signifies a calculated move to unlock capital from state-held assets and utilise it for operational strengthening of the bank along with meeting growing capital adequacy requirements under Basel guidelines.

Ownership Data of the PSBs

As per data available on the Bombay Stock Exchange (BSE), the central government currently holds substantial stakes in the banks under consideration as per the latest shareholding data as of the March Quarter end:

• Central Bank of India – 89.3% stake
• Indian Overseas Bank – 94.6% stake
• UCO Bank – 91% stake
• Punjab & Sind Bank – 93.9% stake

This level of ownership is significantly higher than the standard 25% public shareholding regulation mandated by the Securities and Exchange Board of India (SEBI). However, government-owned entities have been granted an exemption from this norm till August 2026.

Strategic Objectives Behind the Disinvestment

The disinvestment initiative aligns with several broader government-driven goals:

• Improve the capital adequacy ratio and fund operational requirements
• Transition towards reducing direct state influence in banking operations
• Make PSBs more market-oriented and financially agile
• Progressively comply with SEBI's 25% public float norms

This is in accordance with Finance Minister Nirmala Sitharaman’s announcement made during the 2021-22 Union Budget regarding the privatisation of 2 public sector banks apart from IDBI Bank.

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Public Sector Bank Transformation: A Reformist Agenda

This step reinforces the government’s ongoing banking sector reform agenda. By divesting portions of its stake, the government also aims to enhance governance in PSBs, promote accountability, and unlock shareholder value. Raising funds through capital markets ensures minimal fiscal burden while supporting long-term investment in these institutions.

Impact on Capital Markets and Investors

The QIP and OFS announcements are likely to attract both institutional and retail investor attention, particularly in light of strong earnings posted by select PSBs in recent quarters. Investors may find opportunity in the government’s gradual exit as it signals greater autonomy for these banks and increased earnings potential. 

Timeline and Expected Completion

The government aims to complete the stake sales within a 6-month timeframe. Administrative preparation, legal clearances, and SEBI approvals are expected to follow an expedited schedule. Merchant bankers’ appointment, due diligence, and investor mapping will form the core of this preparatory phase.

Conclusion

The government’s decision to fast-track stake sales in UCO Bank, Central Bank of India, Indian Overseas Bank, Punjab & Sind Bank, and Bank of Maharashtra underlines a definitive move towards fiscal consolidation and enhanced governance in the public sector banking space. By leveraging QIP and OFS mechanisms, the Centre aims to reduce its equity load while strengthening the financial health of key PSBs. With the formal appointment of merchant bankers underway, the transaction pipeline is officially in motion.

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