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Indian government could raise up to Rs 28,600 crores if it fully exits its stake in Bank of India and Indian Overseas Bank: states CARE Ratings

The Indian government could raise nearly Rs 28,600 crores if it fully exits its stake in Bank of India (BOI) and Indian Overseas Bank (IOB NSE 14.50 %), CARE Ratings NSE -0.85 % has said in their analysis. The government has announced its plans to privatise at least two public sector banks in the coming fiscal year as part of their Rs 1.75 lakh crore divestment programme.

While it’s is not clear whether the government will fully exit its holdings, as per CAREs analysis if the government were to bring down its stake to 51 per cent in BOI and IOB, it could together fetch the exchequer Rs 12,800. A similar stake reduction to 51 per cent in Bank of Maharashtra NSE 19.16 % (BOM) and Central Bank (CBI) would garner around Rs 6400 crore, as per the rating agencies analysis. The government currently holds 95.8 per cent in IOB, 92.5 per cent in BOM, 92.4 per cent in CBI and 89.1 per cent in BOI.

It is expected that the government will first start by reducing stake to 51 per cent before going below the threshold of 50 per cent so that the bank can be owned by private players as part of the privatisation plan

“IOB has the highest equity capital while BOI has the highest market price relative to the others,” said Madan Sabnavis, chief economist at CARE Ratings. “Based on these prices, if the government were to lower stake to 51 per cent which is retention of ownership of these banks, then the amount that can be raised from these two banks would be around Rs 12,800 crore.” If on the other hand the government gets to divesting fully from BOI and IOB, the potential amount based on these prices would be around Rs 28,600 crore, Sabnavis added.

It is not known as to which banks would be the ones that the government will looking to reduce its stake and the names of IOB, Bank of Maharashtra, Bank of India and Central Bank of India NSE 10.48 % have been cited in media reports. It is expected that the government will first start by reducing stake to 51 per cent before going below the threshold of 50 per cent so that the bank can be owned by private players as part of the privatisation plan.

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