Phase one of the divestment process of the two banks could result in a 51% sale. Credit: F1 Digitals from Pixabay

The Indian government has reportedly shortlisted two state-run lenders Central Bank of India (CBI) and the Indian Overseas Bank (IOB) for potential privatisation.

Phase one of the divestment process of the two banks could result in a 51% sale, reported CNBC Awaaz.

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The government could amend the Banking Regulations Act and other related laws to support the divestment, noted the report.

At present, these two lenders are currently under the Prompt Corrective Action (PCA) framework of the Reserve Bank of India (RBI) for poor financial metrics.

The framework puts caps on lending operations and management compensation as well as other restrictions.

Recently, government think tank NITI Aayog submitted a report to the core group of secretaries on disinvestment shortlisting these lenders.

The process is subject to the approval of the core group of secretaries, led by the Cabinet secretary Rajiv Gauba.

On getting this clearance, the report will be subject to the approval of an alternative mechanism (AM). The final nod has to come from the Cabinet led by the Prime Minister.

The latest news comes shortly after a PTI report said that the two state-owned lender earmarked for privatisation will likely offer an attractive voluntary retirement scheme (VRS).

In February this year during budget, Union finance minister Nirmala Sitharaman said that two public sector banks would be privatised in 2021-22.

Notably, RBI withdrew certain restrictions placed on the operations of IDBI Bank in March this year by taking it out of the PCA framework. The bank was placed under the framework in May 2017, restricting its expansion, investments and lending.

Last month, the Indian cabinet gave its in-principle nod to the strategic disinvestment and transfer of management control in IDBI Bank.