The Indian government is set to divest minority stakes in select Public Sector Undertaking (PSU) banks through the offer-for-sale (OFS) route in the current financial year. This move aims to comply with the 25% minimum public float norm while potentially raising funds for the government.

Key Highlights

• At least two PSU banks are expected to float shares in the first round of stake sales this year.
• The government plans to sell stakes in Bank of Maharashtra, Indian Overseas Bank, UCO Bank, Central Bank of India, and Punjab & Sind Bank.
• A total of about 20% equity will be offloaded in a phased manner across these banks.
• The central government's shareholding in each bank will be brought below 75% to meet regulatory requirements.

Progress and Timeline

• Merchant bankers and advisors have been working on the process since August.
• Meaningful progress is expected within the current fiscal year.

Stake Sale Details

This strategic move by the government serves multiple purposes. Firstly, it helps in meeting the regulatory requirement of maintaining a minimum 25% public float in listed companies. Secondly, it potentially opens up avenues for raising capital, which could be crucial for the government's fiscal management.

The phased approach to selling these stakes suggests a careful strategy to minimize market impact while maximizing potential returns. Investors and market watchers will be keenly observing how these stake sales unfold and their impact on the broader banking sector.

As the process moves forward, more details are expected to emerge regarding the exact percentages of stakes to be sold for each bank and the timeline for these transactions. The success of these stake sales could set a precedent for future divestments in the public sector banking space.

In a significant turnaround for India's public sector banking landscape, PSU banks are witnessing a robust resurgence. The Nifty PSU Bank Index has surged over 20% in the past six months, marking a stark contrast to the 11% decline observed in the previous period.

Leading Performers

Indian Bank and Canara Bank have emerged as the frontrunners in this rally, each posting impressive gains of approximately 41%. Other notable performers include:

Overall Performance

The resurgence is widespread, with nine out of 12 Nifty PSU bank stocks showing positive performance. However, not all banks have shared in this success:

Sector-wide Improvements

Analysts highlight several key improvements in the PSU banking sector:

1. Profit Contribution: PSU banks now contribute nearly 48% of total banking sector profits.
2. Return on Assets (ROA): For the first time in 15 years, the ROA of PSU banks has crossed 1%, reaching 1.1%.
3. Advance Growth: PSU banks have outpaced private banks in advance growth for the first time since 2010.

Private vs Public Sector Banks

While PSU banks have shown remarkable growth, private sector banks have seen more modest gains:

This stark contrast underscores the significant strides made by public sector banks in improving their financial health and market perception.

The resurgence of PSU banks signifies a potential shift in the Indian banking landscape, with public sector entities reclaiming their position as strong contenders in the market. As these banks continue to improve their financial metrics and operational efficiency, they may offer interesting opportunities for investors looking to diversify their portfolios in the banking sector.