Security men stand guard inside a branch of the State Bank of India at Nariman Point, Mumbai. (Photographer: Sebastian Di Souza/Bloomberg News)

Finance Ministry Wants PSU Banks To Bring Down Government Equity To 52%

The Finance Ministry has asked public-sector banks to gradually bring down the government's equity to 52 percent, a senior official said.

"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 percent in the first phase,” Financial Services Secretary Rajiv Kumar told PTI. “As and when market condition allows, banks will take step in that direction. They have all the permission in hand."

Dilution of government stake will help banks to meet 25 percent public float norms of the Securities and Exchange Board of India. Some of the public-sector banks have government's holding beyond 75 percent. Besides, it will encourage the banks to follow prudential lending norms.

The country’s largest lender State Bank of India has already initiated step for Rs 20,000 crore share sale through qualified institutional placement. Post the QIP, the government stake will be diluted from the existing 58.53 percent.

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.

Other lenders like Syndicate Bank, Union Bank of India, Punjab National Bank and Oriental Bank of Commerce have already issued or in process of issuing Employee Share Purchase Scheme.

He further said the government has also initiated the process for consolidation of regional rural banks to better serve the needs of the rural India.

Recently, the Centre amalgamated three regional rural banks—Punjab Gramin Bank, Malwa Gramin Bank and Sutlej Gramin Bank—into a single entity with effect from Jan. 1.

The central government, after consulting the sponsor banks of the three regional rural banks, felt that in the interest of the banks and the areas served by them, they should be amalgamated into a single entity.

Besides, Punjab Gramin Bank and Uttar Bihar Gramin Bank has been amalgamated with Madhya Bihar Gramin Bank.

While the consolidated RRB in Punjab is called Punjab Gramin Bank, with headquarters at Kapurthala, the one in Bihar has been rechristened Dakshin Bihar Gramin (based in Patna).

Also read: How To Make Public Sector Bank Mergers Work

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 percent in RRBs, while 35 percent and 15 percent are with the sponsor banks concerned and state governments, respectively.