The Narendra Modi government is likely to retain at least 26 percent stake in the two public sector banks that are being considered for privatisation, media reports said.

The government may not fully exit the two state-run banks for the first few years, a senior official told Economic Times, adding that the extent of the stake sale will be decided depending on the market conditions and interest from investors.

The government is likely to introduce the Banking Laws (Amendment) Bill, 2021 in the Winter Session of Parliament. The bill aims to amend the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980, and bring in incidental amendments in Banking Regulation Act, 1949. These will help the government to privatise two public sector banks (PSBs).

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"The upcoming bill will clear decks for regulatory approvals required for privatisation of two PSBs but we may like to retain some stake and dilute it at a later stage," an official told Economic Times, adding that the government may wait for the valuation of the banks to rise after the stake sale to offload the rest of its shareholding.

As per the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the government must hold 51 percent stake in public sector banks at all times. The new bill will amend this provision and reduce the government's minimum shareholding to 26 percent.

Privatisation of two banks would not only bring in better receipts to the exchequer but also help meet disinvestment targets and reduce lenders’ dependence on the government for capital infusion, sources aware of the development told Business Standard.

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Government think tank Niti Aayog has shortlisted the Central Bank of India and Indian Overseas Bank for disposal. However, the government is yet to finalise the two banks for privatisation.

Also, the government may not offload 25 percent stake at a go to bring down its shareholding to 26 percent. It will decide on the quantum of stake sale while finalising the contours of the transaction, Business Standard reported.

(Edited by : Jomy Jos Pullokaran)