Govt extends minimum public shareholding deadline for PSUs till Aug 2026

Public sector banks, financial institutions too must increase their public shareholding to at least 25%

The government on Thursday extended until August 2026 the deadline for central public sector enterprises (CPSEs) and public sector financial institutions to adhere to the minimum public shareholding (MPS) norm.

According to a Finance Ministry memorandum, the government has granted an exemption in the public interest and allowed CPSEs, public sector banks and financial institutions until August 1, 2026, to increase their public shareholding to at least 25 per cent.

"In exercise of power granted under sub-rule (6) of Rule 19A of Securities Contract ( Regulation) Rules 1957, the central government hereby decides, in the public interest, that every listed public sector company, as defined in the SCRR, 1957, which has public shareholding below twenty five per cent within the timeline stipulated in Rule 19A of SCRR, 1957, shall get exemption up to August 1, 2026 to increase its public shareholding to at least twenty five per cent,” said a notification issued by the ministry's Department of Economic Affairs.

“The Securities and Exchange Board of India [Sebi] is requested to take further necessary action and bring this to the notice of the stock exchanges concerned,” said the notification.

Five public sector lenders — Bank of Maharashtra, Indian Overseas Bank, UCO Bank, Central Bank of India and Punjab and Sind Bank —plan to reduce government stake to less than 75 per cent to comply with Sebi's MPS norm. Out of 12 public sector banks (PSBs), seven are compliant with the MPS norm as of March 31, 2024. (These are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Indian Bank, Union Bank of India and Bank of India.)

The government holds 98.25 per cent in Delhi-based Punjab & Sind Bank, followed by Chennai-based Indian Overseas Bank at 96.38 per cent, UCO Bank at 95.39 per cent, Central Bank of India at 93.08 per cent, and Bank of Maharashtra at 86.46 per cent.

According to Sebi, all listed companies must maintain an MPS of 25 per cent. It had granted special forbearance to state-owned banks, giving them time until August 2024 to meet the 25 per cent MPS requirement. State-owned Life Insurance Corporation of India (LIC) has been given three more years to achieve 10 per cent public shareholding on or before May 16, 2027.

As of March 31, 2023, public shareholding in the insurance behemoth was at 3.5 per cent. The government has to divest 6.5 per cent over the next three years to achieve the minimum 10 per cent shareholding.

“Minimum public holding is an essential requirement of Sebi. Many of the PSU banks received significant equity contribution from the government of India during the days when the NPAs (non-performing assets) were high and they were suffering losses. Now that the banks have become strong and profitable, it is important to demonstrate that they stand on their own feet and can garner equity from independent sources. This also diversifies the resource profile. Fresh equity will also help provide growth capital and help them in their business,” said Sanjay Agarwal, director at CARE Ratings.