Bank of India's managing director and chief executive officer Rajneesh Karnatak on February 21 said Central government's stake in the public sector banks can be brought down further as the lenders will require additional capital for growth amid a growing economy.

"The equity capital percentage of government, it can be brought down to a significant levels because in future there will be requirement of capital as banks as well as the economy are growing. So, more capital will be required," Karnatak said during a panel discussion at IIM Kozhikode-NSE 2nd annual conference on macroeconomics, banking and finance.

He further said that the consolidation of stakes in banks will be a decision taken by the Central  government.

These comments came at a time when the government has approved fund-raising plans of up to Rs 10,000 crore for five public sector banks through QIP, and additional stake sales via offer-for-sale (OFS).

The government approval is for qualified institutional placement (QIPs) of Rs 2,000 crore each, and OFS of five banks -- Indian Overseas Bank, Bank of Maharashtra, Punjab & Sind Bank, UCO Bank and Central Bank of India, CNBC-TV18 reported citing sources.

The fund-raising will be executed in small tranches beginning the current financial year. The department of investment and public asset management (DIPAM) has also been mandated to divest stakes via OFS to increase the public shareholding, said the report.

The Securities and Exchange Board of India (Sebi) requires all listed companies to maintain a minimum public shareholding of 25 percent.

The deadline for all public sector undertakings to adhere to the norm was August 1, 2024 but the government extended it to August 1, 2026.

After this, Indian Overseas Bank, MD and CEO, Ajay Kumar Srivastava, while addressing Moneycontrol's query said the bank is expected to reduce government's stake in the bank to around 2-2.5 percent through QIP in the fourth quarter of the current financial year.

“We have planned QIP worth Rs 2,000 crore in Q4 and it will reduce government stake by 2-2.5 percent,” Srivastava said during the post earning conference call.

Further, Bank of Maharashtra's chief executive officer and managing director Nidhu Saxena is confident that the lender will meet the minimum public shareholding norms after the second tranche of QIP in the next financial year.

The lender is expected to do a QIP of Rs 2,500 crore in FY26, Saxena had told Moneycontrol on January 16.