Central Bank of India (CBI) had been in the news since November 2021, when reports in the media indicated the possibility of its privatisation along with the Indian Overseas Bank (IOB). The government had decided to privatise the two public sector banks after changing the Banking Act in the parliament. As it happens on such occasions, the bourses were quick to react positively, and the shares of the banks surged on hearing the news. At that time, shares of CBI and IOB gained 10.5% and 13%, respectively, on the Bombay Stock Exchange. Finance Minister Nirmala Sitharaman announced the government’s decision to go through the parliamentary process to enable the privatisation of the two public sector banks.
Government’s Stake in the Central Bank of India
The decision to privatise the two public sector banks was in pursuance of the recommendation of the NITI Ayog, the think tank for national developmental projects. The government had made its intent clear about privatising the two public sector banks by including the proposal in the Union Budget 2021-22. The central government owns a 93% stake in CBI, and its stake in Indian Overseas Bank is 96.4%. The privatisation process is lengthy and complex and could take at least 12 months to complete. Hence, the government is keen to set the ball rolling to bring down its shareholding in CBI and IOB below 51%.
CBI Enters into Strategic Partnerships for Lending
While privatising CBI and IOB is underway, the former bank hit the headlines again in August 2022, but for a different reason. According to news reports, the PSU Central bank of India has entered into a strategic partnership for co-lending with Incred Financial Services (IFSL) and Protium Finance to offer loans at competitive rates to MSME (Micro, Small, and Medium Enterprises) borrowers.
The partnership between the public sector bank and the private financial companies bears enough hints about the change in the bank’s strategy in the wake of privatisation. While the partnership should allow the bank to offer competitive rates to borrowers, it would benefit the finance companies to expand their portfolios further.
The Reserve Bank approved Protium Finance and IFSL of India as non-banking finance companies. Protium operates across 11 states through a network of branches, and the value of the Assets under Management (AUM) is 1,671 crores as on July 31, 2022. It has a solid customer base of 1, 08,447.
Incred Financial operates across nine states and is already into MSME lending, while education loans and consumer loans are the other business verticals.
According to the arrangement, Protium Finance and IFSL will be responsible for originating and processing MSME proposals under the priority sector based on the eligibility criteria and credit parameters formulated jointly with CBI. Under mutually agreed terms, the public sector bank will take 80% of the MSME priority sector loans into its books.
The partnership news pushed the Central Bank of India’s share price to Rs.18.55, an increase of 3.63% on August 21.