India's Finance Ministry Orders PSBs to List Subsidiaries for Improved Capital Efficiency

India’s Finance Ministry has directed public sector banks (PSBs) to list their subsidiaries and enhance governance to improve capital efficiency. This directive aims to unlock value in subsidiaries that have grown sufficiently to justify a market presence. Approximately 15 subsidiaries or joint ventures are being considered for initial public offerings (IPOs) or divestments. Banks are required to improve governance, decision-making, and operational efficiency within these subsidiaries before listings can proceed. The finance ministry views this as a means to increase capital efficiency in the banking sector.

State Bank of India (SBI), the country’s largest lender, is considering listing some of its subsidiaries. SBI General Insurance and SBI Payment Services are among those being considered for listing after further growth. SBI General Insurance reported a profit of ₹509 crore in the year ending March 2025. SBI’s ownership in this subsidiary slightly decreased from 69.11% to 68.99% recently. SBI Payment Services is 74% owned by SBI, with the remaining stake held by Hitachi Payment Services.

Other public sector banks are also pursuing listing plans for their subsidiaries. Canara Bank has initiated the process for Canara Robeco Asset Management Company and approved a 14.5% stake sale in Canara HSBC Life Insurance Company. These actions reflect a coordinated effort to unlock value through subsidiary listings, supported by the finance ministry to improve sector-wide capital efficiency.

Finance Minister Nirmala Sitharaman has urged PSBs to increase corporate lending in productive sectors. This directive follows the Reserve Bank of India's (RBI) recent repo rate cut to 5.5% and a reduction in the cash reserve ratio by 100 basis points. These changes are expected to add about ₹2.5 lakh crore in liquidity to banks, aiming to support key sectors such as renewable energy and infrastructure.

During a meeting, the finance minister emphasized the need to boost deposit mobilization. PSBs were instructed to expand their reach in semi-urban and rural areas, utilizing branch networks more effectively. Identifying growth sectors for the next decade and increasing participation in financial hubs like GIFT City and the India International Bullion Exchange were also encouraged. These measures aim to strengthen public banks’ role in the economy.

Improving customer service and digital accessibility was another key focus. Banks must significantly speed up grievance redressal processes. Digital services should be user-friendly, multilingual, and accessible to all. Physical branches, especially in cities, need to provide clean and welcoming environments. From July 1, PSBs will join a three-month Financial Inclusion campaign targeting 2.7 lakh Gram Panchayats and urban local bodies.

The finance ministry also discussed ongoing government-backed financial initiatives. Banks should strengthen the New Credit Assessment Model for micro, small, and medium enterprises (MSMEs). Over ₹60,000 crore has been sanctioned to nearly 200,000 businesses under this model. PSBs were reminded to support schemes like PM Jan Dhan Yojana and Kisan Credit Card. Staffing shortages, especially in the northeast, must be addressed quickly to expand services in underserved regions and improve coverage and service delivery.