PSU banks disinvestment moves ahead, govt panel to appoint advisers today

The government is likely looking at offloading minority stakes initially

A ministerial group is meeting at noon on July 8 to finalise the appointment of transaction advisers to dilute the government’s stakes in five public sector banks, sources have told Moneycontrol.

The move lays the groundwork for offloading minority stakes in Bank of Maharashtra, Indian Overseas Bank (IOB), UCO Bank, Central Bank of India and Punjab and Sind Bank in the next financial year, they said.

“The IMG (inter-ministerial group), co-chaired by the secretary, department of financial services (DFS) and the secretary, department of investment and public asset management (DIPAM), is expected to approve the appointment of both technical and legal advisers to steer the upcoming stake sale process in PSU banks. The meeting is on July 8,” a government source told Moneycontrol.

Appointment of advisers is the first and most critical step in the disinvestment pipeline. They help navigate legal complexities, structure tranches, and prepare offer documents.

While the government has reiterated its commitment to banking sector reforms and reducing its footprint in non-strategic sectors, it is likely to opt for a phased, market-linked approach for public sector banks.

“The government is likely looking at offloading minority stakes initially to test market appetite and ensure a smooth transition. Strategic sale is not on the table for now, considering market and regulatory sensitivities,” the source added.

Once appointed, the advisers will work with DIPAM and DFS to conduct due diligence, structure the transaction, and prepare the documentation required for the stake sale.

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 execution of deals in public sector banks.

The initial plan to privatise two PSBs — likely Indian Overseas Bank and Central Bank of India — announced in the Union Budget 2021-22, has not progressed so far.

This time, by opting for stake dilution without altering management control, the government hopes to make incremental progress while still signalling reform intent.

After the advisers are on board, the next steps would include valuation exercises, deciding the quantum of stake to be offloaded, and securing necessary regulatory approvals. The execution timeline is expected to stretch through FY26, with actual stake sales likely in FY27.

The government 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.