Indian Overseas Bank OFS: Govt stake dilution by 2026

What the government is planning

The Centre is set to launch an Offer for Sale (OFS) in Indian Overseas Bank (IOB) to reduce its holding in the lender and move closer to minimum public shareholding norms. Official sources told NDTV Profit that the government, which holds 92.44% in IOB, is expected to soon start the process to pare its stake. A finance ministry official also told Informist that the government is planning to use OFS, qualified institutional placement (QIP), or a combination of both for stake sales in multiple public sector banks over the next few weeks. The immediate objective is compliance with the Securities and Exchange Board of India (SEBI) requirement that listed companies maintain at least 25% public shareholding. The move is positioned as part of a broader disinvestment strategy aimed at improving market liquidity in state-owned enterprises while retaining majority ownership. Reports also suggest stake sales could be coordinated across banks rather than executed one at a time. The developments have kept PSU bank stocks in focus, particularly lenders where government ownership remains above 90%.

Why minimum public shareholding is driving the timing

SEBI’s minimum public shareholding (MPS) rule requires listed companies to keep at least 25% of shares in public hands. For public sector undertakings, the compliance deadline has been extended to August 1, 2026, as cited in reports on stake sale planning. Several PSU banks still have government shareholding well above the threshold, meaning the government must dilute holdings over time. The finance ministry official cited by Informist said the stake sale route will help these banks meet the MPS norm. Another report noted that OFS reduces the government stake and proceeds go to the exchequer. By contrast, QIP is typically used to raise capital from institutions, and separate reporting indicated that money raised by selling stakes could be used for the banks’ own requirements. Together, these mechanisms create multiple paths to reach MPS compliance depending on market conditions and approvals.

Indian Overseas Bank: stake levels and past dilution

The government has already used OFS to dilute its stake in IOB in recent periods. NDTV Profit reported that in December 2025, the government diluted a 2.17% stake in IOB through an OFS that received a strong response from investors. Informist also referenced that 2.17% stake sale in December and added that after the sale, IOB’s public shareholding stood at 7.56%. Separately, another report on an IOB OFS said the government planned to sell up to 3% equity, including a 2% base tranche and a 1% green shoe option, to align with SEBI norms. In that same report, DIPAM confirmed the OFS would start on a Wednesday, with non-retail investors bidding first and retail investors bidding the next day. It also said IOB shares ended 1.08% lower at Rs 36.57 on the BSE on Tuesday ahead of the OFS. Across these reports, the direction is consistent: the government intends to keep majority control while gradually increasing public float.

Punjab and Sind Bank and UCO Bank likely next

Stake dilution is not expected to be limited to IOB. NDTV Profit reported that Punjab and Sind Bank and UCO Bank are likely to be the next candidates for stake dilution, with government ownership at 93.85% and 90.95%, respectively. Informist similarly reported that the government’s stake in UCO Bank and Punjab and Sind Bank remains high at 90.95% and 93.85%. Another report said the Centre plans to raise around INR 13,000 crore through an 8% to 10% coordinated OFS in Punjab and Sind Bank, UCO Bank, and IOB, specifically to meet SEBI’s MPS norms. The same report listed government shareholding in Punjab and Sind Bank, UCO Bank, and IOB as 93.85%, 92.44% and 90.95%, respectively. While the exact sequencing and quantum may depend on approvals and market conditions, multiple sources converge on these banks being on the near-term list.

Central Bank of India and the broader set of four banks

Informist reported that the government will likely dilute stake in four PSU banks in the current quarter: Indian Overseas Bank, Central Bank of India, UCO Bank, and Punjab and Sind Bank. The same report stated that the finance ministry had given in-principle nod for QIP or OFS in Central Bank of India, UCO Bank, and Punjab and Sind Bank in Q3 (Oct-Dec) last year, but the timeline was impacted due to market conditions. It added that demand from retail and non-retail investors is currently strong, and more approvals are awaited before announcements. Informist also noted that the government had offloaded an 8.08% stake in Central Bank of India in May, and after that, public shareholding in the bank stood at 18.81%. In addition, it referenced a December sale where the government offloaded a 6% stake in Bank of Maharashtra, taking its public shareholding to 26.4% and making it SEBI-compliant. The immediate policy goal, as described, is to replicate that compliance pathway across banks that remain above the government ownership threshold.

Key numbers: shares to be sold and potential proceeds

Informist provided detailed estimates of shares required for MPS compliance across the four banks, along with a potential proceeds estimate based on stocks’ closing level on a Wednesday.

Based on their stocks’ closing level on that Wednesday, Informist said the government would collect nearly INR 21,500 crore (INR 215 billion) if it sold all 7.25 billion shares required across the four banks to enable SEBI MPS compliance. These figures are indicative and tied to the specified closing levels mentioned in the report, not a guaranteed outcome. They also underline the scale of dilution needed, especially in banks where government ownership is above 90%.

How the IOB OFS is structured in one reported plan

One detailed IOB OFS plan described a base tranche and a green shoe option. It stated the government would sell a 2% base tranche, or about 385.1 million shares, with an option to sell an additional 1%, or 192.5 million shares. At the then-current market price cited in the report, the Centre could garner about INR 2,100 crore by offloading up to 3% stake. The same report noted that up to 150,000 shares, representing 0.001% of the bank’s equity, may be reserved for eligible employees, subject to approvals, and that employees could apply for shares worth up to INR 5 lakh. It also reiterated the broad compliance deadline of August 2026 for minimum public shareholding. These details show how the government is using standard OFS tools, including a green shoe option, to manage demand and execution.

Market reaction: PSU bank shares respond to stake sale reports

PSU bank stocks have shown quick reactions to reports about stake sales and faster timelines. One report said PSU bank shares were trading higher on Tuesday, June 17, after reports suggested the government will fast-track selling its stake, with Indian Overseas Bank up 1.33% and Punjab and Sind Bank, Central Bank of India, and UCO Bank up 0.90%, 0.82% and 0.80%, respectively. Another report said shares of IOB, Central Bank of India, Punjab and Sind Bank, and UCO Bank surged up to 4% on February 25 following reports that the government is considering an OFS and that DIPAM has invited bids from merchant bankers to facilitate stake sale. A separate report on government approvals for fund-raising via QIPs and OFS said five PSB shares jumped 13% to 20% on a Tuesday, with IOB closing up 19.24% at Rs 54.11 and Central Bank of India up 18.36% at Rs 55.51. It also reported UCO Bank up 17.69% at Rs 45.45, Bank of Maharashtra up 13.29% at Rs 52.77, and Punjab and Sind Bank up 13% at Rs 47.71 on the BSE. These moves highlight how sensitive PSU bank stocks can be to changes in expected supply, liquidity, and capital-raising pathways.

What investors should track next

Multiple reports indicate that announcements are linked to internal approvals and market conditions. The finance ministry official cited by Informist said the government is waiting for some more approvals before stake sales are announced. Another report said the current year’s OFS calendar is packed with divestment plans in other listed central public sector enterprises, and suggested PSU bank stake sales could be pushed to FY27, with DIPAM initiating preparatory work including empanelment of transaction advisors and merchant bankers. That same report added that strategic disinvestment is not being considered at this point and the Centre may start with OFS, but not this year, according to the official quoted. At the bank level, IOB management has also flagged a QIP plan, with a reported QIP of INR 2,000 crore in Q4 that could reduce government stake by around 2% to 2.5%. The key near-term triggers, based on what has been reported, are official approvals, transaction advisor selection, and final decisions on whether dilution is executed through OFS, QIP, or both.

Conclusion

The Centre’s expected OFS in Indian Overseas Bank is part of a broader push to reduce government stakes in PSU banks and meet SEBI’s 25% public shareholding requirement by August 2026. Reports point to IOB, Central Bank of India, UCO Bank, and Punjab and Sind Bank as key candidates, with dilution likely through OFS, QIP, or a combination. Detailed estimates from Informist suggest sizable share sales may be needed to achieve compliance, with potential collections tied to prevailing market prices. In IOB, one reported OFS structure includes a 2% base tranche and a 1% green shoe option, alongside a small employee reservation. Next updates are expected around regulatory and internal approvals, and formal announcements by the government and relevant departments including DIPAM.