The government is weighing the option of selling its stake in public sector companies, including Bharat Heavy Electricals Ltd [Get Quote], to state-owned banks and financial institutions.

Last week, the Cabinet Committee on Economic Affairs cleared a proposal to sell an 8 per cent stake in Maruti Udyog Ltd [Get Quote] to public sector banks and FIs through a competitive bidding process, with the stock market price as the benchmark. The government hopes to sell its stake in Maruti by February and is working on the appointment of advisors.

Senior government officials said the process would not only help the government create a corpus for the National Investment Fund but may also be acceptable to the Left parties, which have opposed the sale of profit-making public sector companies in the past.

Opposition from the Left parties has meant that the government has had to put the sale of 10 per cent stake in Bhel on the backburner.

Officials added that the public offers did not often result in sharing the stake with the public as institutional investors were cornering a large chunk of the shareholding across all companies.

A similar model was tried in the early 1990s when financial institutions like Industrial Development Bank [Get Quote] of India [Get Quote] and mutual funds like the Unit Trust of India acquired shares in large public sector companies.

Officials said it had not been decided if the government will build a lock-in period for the sale of stake by the banks and FIs in the secondary markets.

At the time of the sale of shares to FIs in the 1990s, the Comptroller and Auditor General had pointed out incongruities in the process of allotment of shares to FIs.

Experts said the model lacked transparency. They also said that the sale to banks and FIs may not fetch the highest price for the government. The FIs stands to gain if the shares appreciate, but the government will not.

"By not going to the market, the government is neither taking risks nor will it take the rewards for doing so," said an expert.

• BHEL
• Shipping Corporation of India [Get Quote]
• Nalco
• Power Finance Corporation [Get Quote]
• Power Grid Corporation