PSU Bank Merger News: Govt plans fresh consolidation, stake sale in 4 lenders - Report

PSU Bank Privatisation News: The Central government is reportedly planning to reduce its shareholding in four public sector banks to 75 per cent as part of a broader effort to meet minimum public shareholding requirements and advance banking sector reforms.

According to a report by The Economic Times, the four lenders identified for the proposed stake reduction are Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank (IOB).

The government is considering selling shares through the Offer for Sale (OFS) route, depending on market conditions. The first phase of the stake reduction exercise is expected to be completed within a year.

The proposed move comes amid discussions over the next phase of consolidation and privatisation in India's public sector banking industry.

Government plans stake sale in four PSU banks

The government's immediate priority is to bring its shareholding in the four identified banks down to 75 per cent, which would allow them to meet the 25 per cent minimum public shareholding requirement.

The stake sales are likely to take place through the OFS mechanism, under which existing shareholders sell their shares to investors through the stock exchange platform.

However, the timing and size of individual stake sales will depend on prevailing market conditions.

The exercise could increase the number of shares available for public trading and potentially improve liquidity in these banking stocks.

PSU bank privatisation: Two more lenders under consideration?

Beyond the proposed stake sales, the government is exploring the next phase of public sector bank consolidation.

According to the report, two additional public sector banks could be identified for privatisation as part of the broader restructuring exercise.

The government's longer-term restructuring objective reportedly includes retaining three to four large state-owned banks.

Any fresh privatisation proposal may require amendments to existing banking legislation before implementation.

PSU bank merger: What could change?

The proposed consolidation could reshape the structure of India's public sector banking industry.

A reduction in the number of government-owned banks could involve mergers among existing lenders, while selected banks may be considered for privatisation.

However, the identification of banks for potential mergers or privatisation, the transaction structure and the implementation timeline remain subject to further decisions.

Minimum public shareholding rule: Why stake sales matter

Under securities market regulations, listed companies are generally required to maintain a minimum public shareholding of 25 per cent.

This means that promoter shareholding must ordinarily be reduced to 75 per cent or below to meet the requirement.

State-owned companies had been granted exemptions from the requirement, but the exemption expired in August 2026. An extension is expected, according to the report.

The proposed stake sales in Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank would help increase public ownership in these lenders.