3 PSU bank stocks in focus: IOB, Central Bank, Punjab & Sind plan share sales; what investors should know

State-run banking stocks are expected to be in the spotlight as three lenders explore equity fundraising plans to gradually reduce the government’s shareholding and comply with the Securities and Exchange Board of India’s (SEBI) minimum public shareholding norms.

The banks are Indian Overseas Bank (IOB), Punjab & Sind Bank and Central Bank of India.

While Indian Overseas Bank has received approval to raise up to ₹5,000 crore through a qualified institutional placement (QIP), Punjab & Sind Bank and Central Bank of India are also evaluating fundraising options.

The proposed share issuances could increase public shareholding in these lenders while strengthening their capital base.

• The Indian Overseas Bank (IOB) has received approval to raise up to ₹5,000 crore through a qualified institutional placement (QIP) in the current financial year and has secured almost all necessary clearances, Ajay Kumar Srivastava, the bank’s managing director and chief executive officer, told PTI.

The lender is looking to launch the issue towards the end of the current quarter or at the beginning of the fourth quarter, depending on market conditions, he added.

If IOB raises the entire ₹5,000 crore, the equity dilution is expected to be around 6%, bringing the government’s shareholding in the Chennai-headquartered bank down to approximately 86% from the existing 92.44%, Srivastava said.

• Punjab & Sind Bank is also evaluating a capital-raising opportunity through the QIP route. The lender has obtained the requisite approvals, appointed merchant bankers and held discussions with potential investors, as per people in the know.

During an investor interaction after the Q2 results, the Punjab & Sind Bank managing director and chief executive officer, Swarup Kumar Saha, said it was exploring various avenues to raise capital, with a QIP being the preferred route. The timing of the proposed issue would depend on market conditions and feedback from its merchant bankers.

• Central Bank of India is another public sector lender looking at equity capital mobilisation. The bank has received shareholder approval to raise up to ₹7,000 crore through various routes, including QIP, follow-on public offer and rights issue in July.

The lender is also considering reducing the government’s shareholding as part of its capital-raising strategy. However, the route and timing of the proposed fund mobilisation will depend on the bank’s assessment of market conditions.

What is a QIP?

A qualified institutional placement (QIP) is a way for listed companies, including banks, to raise fresh funds by issuing new shares to large institutional investors such as mutual funds, insurance companies and foreign investors.

Since new shares are issued, the total number of shares increases, reducing the percentage ownership of existing shareholders, including the government, if it does not subscribe to the issue.

The proposed issuances come at a time when public sector banks are looking to strengthen their capital base, support business growth and gradually bring down government ownership.

Under the Securities and Exchange Board of India’s minimum public shareholding norms, listed companies are required to maintain at least 25% public shareholding. Fresh equity issuances could help state-owned lenders increase their public float while providing them with additional capital.

With regulatory approvals and preparatory steps already in place at some lenders, the second half of FY27 could see increased fundraising activity by public sector banks, subject to favourable market conditions and investor demand.

What should investors watch out for?

The proposed equity issuances could have two important implications for investors. First, a QIP would strengthen the banks’ capital base and provide additional resources to support credit growth and business expansion. A higher public shareholding could also improve the liquidity of their shares over time.

However, fresh equity issuance would increase the total number of outstanding shares, potentially diluting the ownership percentage and earnings per share of existing shareholders, depending on the issue price and the deployment of the proceeds, analysts explain.