The governments plan to allow PSU banks to raise funds through share sales is unlikely to do the trick. At current prices, this will fetch Rs 53,000 crore if the government holdings fall to 51%. The PJ Nayak committee estimates banks will need R5.8 lakh crore over the next four years though the governments estimate is a much smaller R2.4 lakh crore till FY18. Even that, however, could be a tall ask since markets can be volatile and without capital, state-owned banks will lose market share.
So the government should dilute its stake to levels of 33% in a phased manner that way, it will continue to retain control and enjoy the returns.