India to Reduce Stakes in Five State-Run Banks
The Indian government is to trim its stakes in five state-run banks, potentially through direct stake sales or by allowing the banks to raise funds from large investors. This would help meet minimum public shareholding norms and boost the banks' capital, a government official said, speaking on condition of anonymity.
The banks involved are UCO Bank, Central Bank of India, Indian Overseas Bank, Bank of Maharashtra, and Punjab and Sind Bank. DIPAM can monitor the stake sales, and the banks can also sell shares directly to institutional investors. The government aims to bring down its stake in these banks below 75%.
Such steps will increase the banks' liquidity, and they can further lend money. This will be an essential step as the banking sector gears up for asset quality issues during a slowing down economy. The shares of UCO Bank rose by 20 percent after the announcement, the sharpest gain since October 2003, and Indian Overseas Bank also surged 20 percent, its largest jump since May 2009.
Despite mixed performance in the broader banking sector over the past year, state-run banks have gained favor with investors. The Nifty PSU Bank index has risen nearly 4% in the last 12 months, outperforming the NSE Nifty Private Bank index, which fell by 3.6%.
Valuation data shows that shares of the five banks are being sold at higher price-to-book multiples than their larger peers. The largest lender in India, State Bank of India, carries a price-to-book ratio of 1.44 while the ratios for Central Bank of India, UCO Bank, Indian Overseas Bank, Punjab and Sind Bank, and Bank of Maharashtra stand between 1.43 and 3.62, Bloomberg data show.
Reductions in stakes indicate the continuing effort of the government to make the state-owned lenders comply with regulatory requirements but still improve financial health.
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