Share price of Indian Overseas Bank, Central Bank of India, and UCO Bank rise up to 4% on government stake sale news

Market Performance

Shares of Indian Overseas Bank, Central Bank of India, Punjab & Sind Bank, and UCO Bank experienced gains of up to 4 per cent on February 25. This surge follows reports that the government is considering an offer-for-sale (OFS) to reduce its stake in these public sector banks and increase public participation. Despite this, these banks' shares have declined by up to 13 per cent year-to-date, underperforming the Nifty 50 index, which has fallen by 5 per cent over the same period.

Government's Stake Sale Plan

Reports indicate that the Department of Investment and Public Asset Management (DIPAM) has invited bids from merchant bankers to facilitate the proposed stake sale in public sector banks (PSBs) and listed public financial institutions (PFIs). The initiative aims to align these entities with the regulatory requirement of a minimum 25 per cent public shareholding.

Role of Merchant Bankers

The appointed merchant bankers will be on the panel for a three-year term, with the option of a one-year extension. Their role involves providing guidance to the government on the optimal timing and structure for the equity dilution process.

Disinvestment Strategy and Target Banks

The government's disinvestment strategy seeks to enhance public participation in state-owned enterprises, improve market liquidity, and deepen capital markets. Banks where the government is likely to conduct an OFS include:

• Indian Overseas Bank
• Central Bank of India
• Punjab & Sind Bank
• UCO Bank

These banks currently have government shareholding exceeding 90 per cent, making them prime candidates for stake dilution.

Financial Performance

Recent Stock Performance

• Share Price Movement: Increased up to 4 per cent on February 25.
• Year-to-Date Decline: Dropped up to 13 per cent, underperforming the Nifty 50's 5 per cent decline.

Conclusion

The proposed OFS aligns with the government's broader objective of increasing public shareholding in state-owned banks. As the process advances, further details on the timeline and extent of stake dilution are expected. The initiative is anticipated to potentially enhance market liquidity, possibly attracting greater investor participation.