SEBI Should Bring These Five PSU Banks Under Additional Surveillance Now

The UCO Bank ATM is located in Mumbai. However, the question arises whether a private sector publicly listed company will have the same flexibility as the PSU banks in disregarding minimum public shareholding norms. The regulator can do little about the minimum public float regulations, which are applicable to all companies except public sector units.

However, the regulator can manage volatility and stock price spikes driven by small trading volumes or block trades in at least five PSU stocks that are not compliant with the minimum public shareholding requirement: UCO Bank, Punjab & Sind Bank, Indian Overseas Bank, Central Bank of India, and Union Bank of India. Though there are no concerns about the fundamentals of these five PSUs, the low liquidity and volatile price movements are alarming as small investors are enticed by such sharp price surges. For new investors who may be unaware, these five stocks suffer from the ‘Wipro effect’ of the early 2000s when the Wipro stock used to spike on low volume trade due to low liquidity and shares largely held by Azim Premji.

Private companies not meeting SEBI’s public float rule would face consequences, including freeze of the shareholding of the promoters and eventual delisting. However, government-owned banks like these are governed by different regulations. The Securities and Exchange Board of India and stock exchanges have implemented measures to enhance market integrity and safeguard investor interest, such as reduction in price band, periodic call auction, and transfer of securities to delivery-only ‘trade for trade’ segment from time to time.

However, the regulator seems to be turning a blind eye when it comes to these PSU banks. The share prices of UCO Bank and Punjab & Sind Bank have more than doubled in the last 12 months with significant trading volumes in comparison to the net free float of the companies. These irregular trading patterns can also be observed in Indian Overseas Bank, Central Bank, and to some extent in Union Bank.

While the regulator and stock exchanges may be incapable of imposing restrictions on the promoter holdings of these banks, they can certainly introduce price bands to check volatility and protect small investors. The question is raised as to why illiquid shares should enjoy a 20% circuit in the market.