MPS norm: FinMin may extend August deadline for PSBs, insurance firms

Five PSBs are planning to reduce government stake to less than 75%

The finance ministry is in favour of extending the August deadline for public sector banks (PSBs) as well as insurance companies to increase their minimum public shareholdings (MPS) to the mandated 25 per cent, said a senior government official.

“The election results will determine the course of action. Most likely, those who did not receive an extension to meet the minimum shareholding norm will be granted one,” the senior government official said. The official added that the department of financial services is likely to write to the Securities Exchange Board of India (Sebi) regarding the issue.

Five public sector lenders, including Bank of Maharashtra, Indian Overseas Bank, UCO Bank, Central Bank of India and Punjab and Sind Bank are planning to reduce government stake to less than 75 per cent. This will help them comply with Sebi's MPS norms.

Of the 12 public sector banks (PSBs), seven, including State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Indian Bank, Union Bank of India and Bank of India are compliant with MPS norms as of March 31, 2024.

An email query sent to the finance ministry remained unanswered till the time of going to press. 

Currently, 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.

It is followed by 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. However, the regulator had granted special forbearance to state-owned banks, giving them time until August 2024 to meet the requirements.

Recently, public sector insurance company Life Insurance Corporation of India (LIC) was given three more years by Sebi to achieve 10 per cent public shareholding. The revised timeline for LIC is 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 for Sebi.

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

Earlier, in an interview with Business Standard, Ramaswamy Narayanan, chairman and managing director of General Insurance Corporation of India (GIC Re), said he expects the activity of selling about 10 per cent in the reinsurer to begin after elections, though no timeframe has been decided.