The Finance Ministry is finalising the draft Cabinet note on reducing government stake in PSU banks to up to 52 per cent as part of recapitalisation drive.
In 2010, the then Cabinet had approved a proposal to keep the minimum shareholding of government to 58 per cent in the public sector banks in order to provide buffer for the future.
A draft note is now being finalised for taking blanket approval from the Cabinet to bring down government the minimum stake in state-owned banks from 58 per cent to up to 52 per cent as and when required.
It would soon be circulated to different ministries for their feedback, sources said.
As per law, government holding at any moment must not come below 51 per cent to maintain the public sector character of PSU banks.
At present, government shareholding in various banks varies between 56.26 per cent (Bank of Baroda) and 88.63 per cent (Central Bank of India).
Public sector banks require equity capital of Rs 2.4 lakh crore (Rs 2.4 trillion) by 2018 to meet Basel III norms.
For the current fiscal, the government has allocated Rs 11,200 crore (Rs 112 billion) for bank capitalisation.
The government has infused an amount of Rs 58,600 crore (Rs 586 billion) between 2011 to 2014.
During the current fiscal, sources said, SBI and PNB may be among the first banks to tap capital market this financial year to raise funds to meet global risk norms Basel III. State Bank of India (SBI) is the country's largest bank and government holds 58.60 per cent stake.
Punjab National Bank is the second largest PSU bank, in which government holding is 58.87 per cent.
The capital would be raised through various instruments and at different times depending on the best valuation, they said.
It will be done through a combination of FPO and QIP.
Besides, banks could raise through bonds and selling assets. Finance Minister Arun Jaitley in the Budget speech had said that "to be in line with Basel-III norms there is a requirement to infuse Rs 2,40,000 crore (Rs 2,400 billion) as equity by 2018 in our banks. To meet this huge capital requirement we need to raise additional resources to fulfil this obligation".
While preserving the public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner through the sale of shares largely through retail to common citizens of this country, the minister had said.
"Thus, while the government will continue to have majority shareholding, the citizens of India will also get direct shareholding in these banks, which currently they hold indirectly," he had said.