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The share prices of the two public sector banks- Indian Overseas Bank (IOB) and the Central Bank of India (CBI) hit a 52 week high in morning trade on Tuesday to reach Rs.27.95 and Rs.28.30 respectively. The sudden increase in investor activity is attributed to news reports that the two banks had been selected for divestment by the Government of India.
The Indian Overseas Bank, which closed at a share price of Rs.23.60 on Monday, witnessed an 18% increase to reach the high of Rs.27.95. Similarly, the Central Bank of India’s shares rose by 16% over the previous day to reach a 52 week high of Rs.28.30.
CNBC Awaaz had reported on June 21 that the central government had shortlisted the two banks to start the divestment process. The report added that that the government could sell a 51% stake under the first phase of disinvestment.
The proposed stake sale is a part of the Modi government’s target to raise a total amount of Rs.1.75 lakh crore through disinvestment during the fiscal year 2021-22.
However, for the divestment process to go ahead, the government would be required to bring amendments to the Banking Regulations Act among some other banking laws. Moreover, the IOB and CBI have weak financial health which could make the process of stake sale difficult. The two state-owned lenders are currently functioning under the Prompt Corrective Action (PCA) framework of the RBI. Under this framework, the RBI has put some business restrictions on the two banks in view of their weak financials.