5 PSU Banks To Sell Shares To Maintain Minimum Public Holdings; Know How PSU Bank Stocks Have Performed

Government of India's Financial Secretary Vivek Joshi on March 14, 2024, announced that five public sector banks (PSUs), including Punjab & Sind Bank, Bank of Maharashtra, Indian Overseas Bank, and UCO Bank, are preparing to sell stocks to bring down the government's stake to less than 75 per cent. This is being done in order to comply with the minimum public shareholding (MPS) norms mandated by the Securities and Exchange Board of India (Sebi). Out of 12 PSBs, seven banks are maintaining the public float norm of 25 per cent as of yesterday. The remaining five have laid out action plans to meet the MPS requirement, Joshi said.

Currently, government ownership in Punjab & Sind Bank stands at 98.25 per cent, followed by 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. These banks have until August 2024 to comply with the 25 per cent public holding requirement. Joshi highlighted without giving a timeline, that efforts are ongoing to meet the requirement. 

How Have PSU Bank Stocks Performed?

Regarding the performance of PSU bank stocks, they have outshone private lenders over the past three years. For instance, in the last year alone, the Nifty PSU Bank index recorded whopping returns of over 85 per cent, overshadowing the 19 per cent returns of the larger Nifty Bank index during the same period. This shows that Private banks were lagging far behind PSU banks. The largest Private sector HDFC Bank's share price corrected from Rs 1,709 to Rs 1,455 since December 2023 end after its December quarter results came, and possibly many of these investors might have moved to public bank stocks contributing to the smooth ride of PSU bank stocks.

Investors have shown much interest in Punjab & Sind Bank which is the largest disinvestment, Joshi announced in his round. This stock has witnessed a 127 per cent surge in the past year, compared to a 30 per cent rally in NIFTY (Nifty 50).

Incidentally, eleven thematic mutual funds focusing on banking and financial services institutions called bank thematic mutual funds, over one year, provided 30.70 per cent returns. The benchmark return is 19.30 per cent. However, this is not an accurate metric of PSU bank performance because private banks and insurance companies also feature in the top constituents of its benchmark index.

However, investors should be cautious as PSU banks may face future challenges because of weaker deposit growth and lower liquidity buffers compared to private banks, impacting their earnings.

In the previous round of PSU bank stock disinvestment announced by the government, Bank of India was the largest divestment. Now its shares are trading at Rs 135.20, an 89.36 per cent rally in the past year and a 19.59 per cent surge year-to-date.