Govt may begin offloading minor stakes in five PSU banks via OFS in FY27; strategic sale deferred for now

As part of the process, merchant bankers are being shortlisted into two categories

The Centre is likely to begin offloading minority stake via the Offer for Sale (OFS) route in five public sector banks -- Bank of Maharashtra, Indian Overseas Bank (IOB), UCO Bank, Central Bank of India and Punjab and Sind Bank -- in the next financial year (FY27), a senior government official said.

“DIPAM (Department of Investment and Public Asset Management) may do an OFS in these five banks. For a strategic sale, cabinet notes will need to be prepared. The Department of Public Enterprises (DPE) will have to move that note. Strategic disinvestment is not being considered at this point; the Centre may start with OFS, but not this year,” the official told Moneycontrol.

Given that the current year’s OFS calendar is already packed with divestment plans in other listed central public sector enterprises (CPSEs), the stake sale in these public sector banks has been pushed to FY27.

DIPAM has started preparatory work by launching the empanelment process for transaction advisors and merchant bankers.

As part of the process, merchant bankers are being shortlisted in two categories — Category A for transactions below Rs 2,000 crore and Category A+ for those above Rs 2,000 crore — to support the execution of deals in public sector banks.

This marks a significant shift in approach as the OFS route has not been used so far for stake sales in PSU banks. Previous capital-raising exercises in the sector were mostly done through Qualified Institutional Placements (QIPs), which help banks shore up their own capital rather than reduce the government’s shareholding.

“QIPs happen when banks need capital. The money goes to banks. But in an OFS, it’s the government stake that reduces, and proceeds come to the exchequer. OFS has not happened in PSU banks till now,” the official noted.

Sources said that DIPAM is closely monitoring price trends and valuation charts of the five identified banks.

Research is being done on both endogenous (firm-specific) and exogenous (macro-economic and market-linked) factors to determine the timing and structure of the proposed stake sales. The aim is to optimise government realisations while maintaining investor interest.

The Department of Financial Services (DFS) has already identified these five banks as candidates for an eventual strategic disinvestment, but any such move would require inter-ministerial consultations and a cabinet-level decision, which is not currently on the table.

The renewed focus on PSU bank stake sales comes amid renewed investor interest in the banking sector, especially following traction around IDBI Bank’s strategic disinvestment.

The government currently holds 86.46 percent in Bank of Maharashtra, 96.38 percent in IOB, 95.39 percent in UCO Bank, 93.08 percent in Central Bank of India and 98.25 percent in Punjab and Sind Bank.