UCO Bank, IOB, IDBI Bank among 6 PSU banks that may remain in spotlight over next few months

Public Sector Bank (PSBs) including UCO Bank, Indian Overseas Bank, IDBI Bank Ltd, Bank of Maharashtra, Punjab & Sind Bank and Central Bank of India will remain in the spotlight at Dalal Street for next few months, as the government may eye to meet the minimum public shareholding norms for these lenders.

According to a report from The Print, citing Economic Affairs Secretary Ajay Seth, the PSB that currently does not meet the minimum public shareholding norms of 25 per cent will go to the market 'over the next few months' to address the issue. However, the process may take a couple of years as per the report.

According to SEBI norms, a promoter may hold a maximum of 75 per cent share in a company, and 25 per cent of the holding should be free float or, put in simpler words, should be available to be held by the public shareholders.

There are a dozen public sector banks, and half of them do not meet the minimum public shareholding norms set by markets regulator Securities and Exchange Board of India (Sebi). However, the government has the exception from this rule, where Public Sector Undertakings (PSUs) may not have a minimum of 25 per cent of public shareholding.

"Some banks are not at 25 per cent of public shareholding, and we do expect that over the next few months, those that are below 25 per cent public shareholding, will be coming to the market,” Seth told ThePrint in an interview. “It will not be possible for some of them to reach 25 percent in one go,” he added.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities said that the minimum 25 per cent public float helps prevent stock price manipulation but we may see a few OFS or stake sale offers from the governments in the coming months as it is shall be a prudent approach to sell stake after a strong rally in the last few quarters.

On a specific basis, Punjab & Sind Bank has the lowest public float of 1.8 per cent, while Indian Overseas Bank has a public shareholding of 3.6 per cent. UCO Bank and IDBI Bank have a public shareholding of 4.6 per cent and 5.3 per cent, respectively. Central Bank sits with 6.9 per cent and Bank of Maharashtra at 13.5 per cent of the public shareholding.

G Chokkalingam, Founder at Equinomics Research said that it is opportune time for the government to meet the minimum shareholding requirement in the PSU Banks, which are trading at historic price-to-book value (P/BV) multiples.

"The government should consider to unlock the value at current levels as the state-run lenders are trading at decadal highs valuations and it is the best possible time to sell stake or strategic disinvestment," he said adding that the current bull in PSU banks may not continue for a long period.

Besides the PSU Banks, other three financial PSUs including Life Insurance Corporation of India (LIC), New India Assurance Company and General Insurance Corporation of India — have low public shareholding. The government shareholding in all three is more than 85 percent, leaving less than 15 per cent shares for public shareholders.

Other than the financial entities, the count of listed non-financial PSUs reaches to 62, of which nine companies do not meet the 25 per cent free float norm of Sebi. The list includes names like Mazagon Dock Shipbuilders, SJVN, Indian Railways Finance Corporation (IRFC), India Tourism Development Corporation (ITDC), MMTC and more.

"The interest in public sector undertakings has increased sharply after the majority of the state-run companies delivering multibagger returns and market capitalization zooming. The combined market cap of 81 listed Public Sector Undertakings (PSUs) including banks and insurance companies has grown by 225 per cent in the last three years, aided by the government’s higher capital expenditure, better capital management and professionalism. However, after the dream-run for PSU stocks investors should cherry-pick stocks from this space on the basis of reasonable valuations and earnings visibility," Bathini added.

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