The Indian government is considering reducing its ownership in four public sector banks to 75% as it prepares for another round of banking sector consolidation. The proposed move could increase public shareholding in Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank, while the government also evaluates the possibility of privatising two lenders.
The development comes amid renewed focus on the government’s long-standing disinvestment plans following the proposed sale of a majority stake in IDBI Bank.
Four PSU Banks in Focus for Stake Reduction
According to reports, the government wants to reduce its shareholding in four state-owned lenders to meet minimum public shareholding requirements prescribed by market regulators.
The banks under consideration are:
- Central Bank of India: The government holds approximately 81.19%.
- UCO Bank: Government ownership stands at around 90.95%.
- Punjab & Sind Bank: The government holds approximately 93.85%.
- Indian Overseas Bank: Government ownership is around 92.44%.
The proposed target is to bring government ownership down to 75%. This would increase the proportion of shares available to public investors.
The government may sell its holdings through an Offer for Sale (OFS), depending on market conditions. Individual banks could also raise capital through the stock market, based on their financial requirements and business strategies.
Central Bank and Indian Overseas Bank Could Be Privatisation Candidates
Alongside the proposed stake reductions, the government is reportedly developing plans for another round of consolidation among public sector banks. The process could identify two additional lenders for privatisation.
NITI Aayog has reportedly shortlisted Central Bank of India and Indian Overseas Bank as potential candidates. However, no final privatisation decision has been announced for either bank.
The government’s longer-term objective is reportedly to maintain three or four large state-owned banks rather than a larger number of smaller lenders.
Any consolidation exercise would consider factors such as technological compatibility, geographical reach and business mix. Banks themselves are also expected to contribute suggestions to the process.
Privatisation Would Require Legal Changes
The proposed reduction in government ownership is different from privatisation. Selling a minority stake would increase public shareholding but would not, by itself, transfer control of a bank to private investors.
A full privatisation process would require additional decisions and legislative changes, including amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act.
In the Union Budget for 2021–22, the government announced plans to privatise two public sector banks and one general insurance company, apart from IDBI Bank. Progress on these plans has been gradual.
Earlier in October 2026, the government announced that Fairfax Financial Holdings would acquire a 60.72% stake in IDBI Bank for ₹52,878 crore.
What the Proposed Changes Mean for Investors
A larger public shareholding could improve trading liquidity and potentially help the four banks’ market valuations. However, the impact would depend on the price at which shares are sold, investor demand and each bank’s financial performance.
For investors, the key distinction is that the immediate proposal concerns stake dilution and regulatory compliance, while privatisation and consolidation remain separate policy developments that require further action.
Summary
The government is considering reducing its stakes in Central Bank of India, UCO Bank, Punjab & Sind Bank and Indian Overseas Bank to 75%. The proposed sales would increase public shareholding and could take place through offers for sale. Separately, Central Bank of India and Indian Overseas Bank have reportedly emerged as potential privatisation candidates, although no final decision has been announced.