Shares of IOB, Central Bank of India surge on reports of privatisation

Shares of Indian Overseas Bank (IOB) and Central Bank of India (CBI) surged on reports that the government will privatise the two public sector lenders after it moves legislative changes to the Banking Regulation Act in the upcoming winter session of the Parliament. The two public sector banks (PSBs) clarified that they do not have any information on privatisation from the government.

Shares of Indian Overseas Bank and Central Bank of India closed 13 per cent and 10.5 per cent higher, respectively, on the Bombay Stock Exchange on Wednesday.

The government will introduce Banking Laws (Amendment) Bill 2021 in the winter session of Parliament that will make changes in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949, according to the list of business for the upcoming session of the Parliament. These would enable privatisation of two public sector banks as announced by Finance Minister Nirmala Sitharaman.

Although privatisation of these two public sector banks will not be completed in the ongoing financial year, the government is likely to soon initiate the privatisation as it would take about 12 months to complete the process.

These two banks were recommended for privatisation by NITI Aaayog. The Centre owns 96.4 per cent stake in Indian Overseas Bank, and 93 per cent in Central Bank of India. The quantum of stake reduction by the government in these banks would be decided while finalising the contours of the transaction. However, the government would bring down its shareholding below 51 per cent, ceding control over the public sector banks.

The Central Bank of India presently comes under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India (RBI).

The government was earlier considering bringing public sector banks under the Companies Act to allow the bank privatisation exercise to go through. Discussions were held with stakeholders to bring the two public sector banks (PSBs) out of the purview of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and 1980. This would have brought these banks under the Banking Regulation Act and Companies Act, and would also eliminate the need to separately amend limits for private and foreign ownership, voting rights, among others.

The government has started the strategic disinvestment process for IDBI Bank which will lay the groundwork for privatisation of other PSBs.

Post privatisation of two public sector banks, there would be ten public sector banks in the country.

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