PSU Bank Stocks Edge Higher as Government Plans Capital Infusion to Meet SEBI Norms

Shares of several public sector banks (PSBs) moved higher on September 17, 2025, after the government confirmed plans to infuse capital in select lenders to meet regulatory requirements. The gains were led by Indian Overseas Bank, Punjab & Sind Bank, UCO Bank, and Central Bank of India, all of which are preparing to raise funds this year to align with the Securities and Exchange Board of India’s (SEBI) minimum public shareholding (MPS) rules.

SEBI’s Public Shareholding Mandate

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SEBI requires all listed companies to maintain at least 25% public shareholding. However, the four PSBs currently fall far short of this benchmark, with the government holding stakes close to or above 90%. According to the June 2025 quarter data, Indian Overseas Bank has 94.61% government ownership, Punjab & Sind Bank 93.85%, UCO Bank 90.95%, and Central Bank of India 89.27%. Public ownership in these banks ranges from just 5% to 11%.

Despite having recently raised between ₹1,500 crore and ₹2,000 crore each through Qualified Institutional Placements (QIPs), the impact on reducing the government’s controlling stake was limited.

Government’s Position on Ownership

M. Nagaraju, Secretary of the Department of Financial Services (DFS), stressed that while these banks will raise capital to meet SEBI norms, the government has no intention of reducing its ownership below 51% in any PSU bank. This means the state will retain majority control even after the fresh fundraising exercise.

Nagaraju explained that the move is designed to serve a dual purpose—ensuring compliance with SEBI regulations while also enhancing the banks’ ability to lend. “We need capital. This year, we are going to raise funds for four banks to comply with SEBI’s public shareholding norms. With adequate capital, we will also be in a stronger position to support credit growth,” he said.

Favourable Market Conditions

The DFS secretary highlighted the supportive economic backdrop, citing strong profitability in the previous financial year, manageable inflation levels, and sufficient liquidity in the financial system. “We’re optimistic. The macroeconomic conditions are favourable, and we want to signal our intent to expand lending,” he added.

He further underlined the government’s stance on retaining control, saying public sector banks will continue to remain majority state-owned in line with broader public interest.

Conclusion

The government’s decision to infuse capital into these four banks aims to meet regulatory norms and strengthen their lending capacity without diluting majority ownership. While investors welcomed the move, the challenge of reducing government stakes to align with SEBI’s shareholding requirements remains significant.