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निवेश और लोक परिसंपत्ति प्रबंधन विभाग, वित्त मंत्रालय, भारत सरकार

Department of Investment and Public Asset Management, Ministry of Finance, Government of India
Frequently Asked Questions (FAQs)

Frequently Asked Questions

Question 1: Why does the Government disinvest CPSE's ?
Answer :
Government policy on disinvestment consists of:
  1. Strategic disinvestment/privatization and
  2. Minority stake sale in CPSE's.
Strategic Disinvestment implies entire or substantial sale of Government shareholding of a CPSE along with transfer of management control. Strategic Disinvestment/Privatization is guided by the economic principle that Government should discontinue in sectors, where competitive markets have come of age and economic potential of many public entities may be better discovered in the hands of strategic investor through infusion of capital, technologies and better management practices leading to economic growth and job creation. This is a key element for building an Atma Nirbhar Bharat.

In certain CPSE's, the government carries out Minority Stake Sale without transfer of management control through various SEBI-approved methods, in order to unlock the value, promote public ownership, meet the minimum public shareholding norms of SEBI and for ensuring higher degree of accountability. The modes of disinvestment commonly used for minority stake sale include Initial Public Offer (IPO), Offer for Sale (OFS), Buyback of shares etc. These methods play important role in strengthening the capital market through:
  1. Increasing the float of well performing CPSE's
  2. Providing opportunity to retail investors to participate in an extended range of stocks and bonds and
  3. Increasing liquidity and depth of the markets
Question 2: What are the Salient features of Current Disinvestment Policy?
Answer :
Government policy on disinvestment consists of :
  1. Strategic Disinvestment/Privatization and
  2. Minority Stake Sale in CPSEs
  1. Strategic Disinvestment implies entire or substantial sale of Government shareholding of a CPSE along with transfer of management control. In case of Privatization, which is a sub-set of strategic disinvestment, the Government equity in CPSE and its management control is transferred to a private strategic buyer(s) and in other cases of strategic disinvestment, the Govt. equity is transferred to another CPSE along with control.
  2. Minority Stake Sale in certain CPSE's are carried out without transfer of management control through various SEBI-approved methods like Initial Public Offer (IPO), Offer for Sale (OFS), Buyback of shares etc. These methods play important role in strengthening the capital market through:
    1. Increasing the float of well performing CPSE's
    2. Providing opportunity to retail investors to participate in an extended range of stocks and
    3. Increasing liquidity and depth of the capital market
The New Public Sector Enterprise (PSE) Policy for Atma Nirbhar Bharat, which also provides overall guidance on strategic disinvestment, was notified on 4th February, 2021 with the approval of Cabinet. The policy intends to minimize the presence of Government in the PSEs across all sectors of economy.

The New PSE policy delineates four Strategic sectors based on the criteria of national security, energy security, critical infrastructure, provision of financial services and availability of important minerals. Bare minimum presence of the existing public sector commercial enterprises at Holding Company level will be retained under Government control in the strategic sectors. The remaining will be considered for privatization or merger or subsidiarization with another PSE or for closure. All PSEs in non-strategic sectors shall be considered for privatization, where feasible, otherwise such enterprises shall be considered for closure. However, the policy does not apply to certain classes of public sector entities such as Not-for-profit companies, or CPSEs providing support to vulnerable groups, or having developmental/promotional roles etc.

The Department of Public Enterprises has prepared guidelines (13 December 2021) to operationalize the New Public Sector Enterprise policy which inter-alia provides for the identification of the CPSEs either for closure or privatization in the non-strategic sectors in consultation with the concerned Administrative Ministries/Departments, NITI Aayog, Department of Expenditure and DIPAM.

Further, the Cabinet, in its meeting held on 18.05.2022 had given approval for empowering the Board of Directors of the Public Sector Enterprises (PSEs) to recommend and undertake the transactions for Disinvestment (both strategic disinvestment and minority stake sale) or closure of any of their subsidiaries or units or sale of stake in JVs. It was also approved that based on proposal of Board of CPSE and Administrative Ministry, DIPAM will obtain an " in-principle" approval of Alternative Mechanism. Thereafter, the Board of CPSEs can undertake the process of disinvestment or closure of subsidiaries/units/JVs based on DIPAM or DPE guidelines. For this purpose, DIPAM has issued Guiding principles for undertaking the disinvestment transactions of their units/subsidiaries/JVs by parent/holding companies on 14.09.2022 and Department of Public enterprises has issued guiding principles for closure of units/subsidiaries etc. by parent/ holding companies on 31.10.2022.
Question 3: What is the current strategy for investment management in CPSE's?
Answer :
Government anchors its holistic public asset management approach in an overarching economic strategy of accelerating economic growth and job creation. This approach inter alia includes measures to align management focus on profitable growth, return on equity and capital employed, asset turnover, CAPEX growth, consistent dividend policy, capital allocation optimization, better connect with investors and stock market analysts so that reasonable expectations on returns for shareholders including minority shareholders are given adequate consideration along with interests of other stakeholders. The disinvestment strategy for minority stake sale is also applied in a calibrated manner consistent with win-win approach for government and minority shareholders.
Question 4: What are the methods of disinvestment of minority stake in CPSE's?
Answer :
Methods of Minority Stake Sale are:
  1. Initial Public Offer (IPO): When an unlisted company makes either a fresh issue of shares or convertible securities or offers its existing shares or convertible securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer's shares or convertible securities on the Stock Exchanges.
  2. Further Public Offer (FPO): When an already listed company makes either a fresh issue of shares or convertible securities to the public or an offer for sale to the public, it is called FPO.
  3. Offer For Sale (OFS) is a simpler method of sale of shares through the exchange platform for listed companies. The mechanism was first introduced by SEBI in 2012, to make it easier for promoters of publicly-traded companies to cut their holdings and comply with the minimum public shareholding (MPS) norms. The method was largely adopted by listed companies, both state-run and private, to adhere to the SEBI norms of minimum public shareholding. Government has often used this route to divest its shareholding in CPSEs to achieve MPS and further dilution beyond MPS. However, Government is competent to extend time for achieving MPS for Public Sector under Rule 19 A of SCRR, 1957. Salient features of OFS are as under:
    1. Simple to execute
    2. Market-driven
    3. Govt. continues to retain management control
    4. Cost-effective
    5. Time efficient (completed in 2 trading days)
    6. Transparent allocation based on price-parity basis.
  4. Buyback of Shares: Buyback is the repurchase by a company of its shares from the existing shareholders that reduces the number of its shares in the open market. Companies buy back their shares for a number of reasons:
    1. To increase the value of shares held by promoters.
    2. To eliminate any threats by minority shareholders who may be looking for a controlling stake.
    3. For CPSEs, buyback is a tool for Govt. of India to disinvest the equity held by GoI in CPSEs and to make proper utilization of idle cash left with CPSEs. As per DIPAM guidelines dated 27.05.2016 the criteria for identifying potential buyback cases (subject, of course, to specific circumstances of each case) are as under:
    1. CPSE with net worth of Rs. 2,000 crore and cash and bank balance of Rs. 1,000 crore should consider for buyback.
    2. Other CPSEs may also go for buyback, based on the merits of each case. It's the CPSE Board which has to initiate for the Buyback and DIPAM has no role in decision for Buyback on behalf of the CPSE. GoI may or may not participate in buyback offer of the CPSE Board. If GoI, being the majority shareholders of the CPSE, intends to participate in the buyback, then DIPAM seeks Alternative Mechanism (AM) approval on HLC recommendations for subscribing to the buyback offer.
  5. Exchange Traded Funds: An ETF is a basket of stocks that reflects the composition of an Index, like Nifty-50 or BSE Sensex. Govt. introduced ETF as a method of disinvestment of CPSEs in 2014 by launching CPSE-ETF comprising of 10 CPSEs (with 67% weight in favour of energy sectors). Later another ETF, i.e. Bharat-22 was launched in 2017 comprising of 16 CPSEs, 3 PSBs and 3 private sector companies (where SUUTI had stake).
Question 5: What are the steps involved in the CPSE's disinvestment process?
Answer :
  1. Strategic Disinvestment of CPSEs involves the following steps (after announcement of the New PSEs Policy in 2021):
    For CPSEs under Strategic Sectors:
    1. NITI recommends CPSEs to be retained under the Government Control or to be considered for privatization or merger or subsidiarization with another PSE or for closure.
    2. NITI Aayog's recommendations are put to the Core Group of Secretaries on Disinvestment (CGD).
    3. CGD recommendations are put to the Alternative Mechanism (AM).
    4. AM approves the CPSEs to be retained under Government control or to be considered for privatization or merger or subsidiarization with another PSE or for closure.
    5. DIPAM obtains in-principle approval of the CCEA for the Strategic disinvestment of the CPSE.
    6. DIPAM appoints Transaction Advisors/Legal Advisor/Asset Valuers through tendering, with the approval of IMG.
    7. Further, a two-stage bidding process (EoI/RFP) is followed. In each stage, the process passes through multi-layer inter-ministerial decision-making mechanism involving Inter-Ministerial Group (IMG), Core Group of Secretaries on disinvestment (CGD) and Alternative Mechanism (which is an empowered group of Ministers) as per the approved process.
    For CPSEs in non-Strategic Sectors: The Department of Public Enterprises has prepared guidelines (dated 13th December, 2021) to operationalize the New Public Sector Enterprise policy by following these steps:
    1. DPE will identify the CPSEs either for closure or privatisation in consultation with the concerned Administrative Ministries/Departments, NITI Aayog, Department of Expenditure and DIPAM.
    2. DPE will take in-principle approval of the CCEA regarding the CPSEs identified for closure and/or for disinvestment.
    3. The Department of Public Enterprises communicates in principle approval of CCEA to DIPAM for privatisation/disinvestment of CCEA. However, in closure, the process is initiated by the Administrative Ministry
    4. DIPAM will take further actions as per the extant procedure

  2. Minority Stake Sale

    Minority Stake Sale through IPO/FPO involves the following steps:
    1. In principle consent by the Administrative Ministry of the CPSE concerned
    2. CCEA approves disinvestment of minority stake in the CPSE through IPO/FPO.
    3. Constitution of a HLC to guide and oversee the disinvestment process.
    4. Appointment of Advisers (Merchant Bankers/Book Running Lead Managers & Legal Advisers) by the IMG for the proposed transaction.
    5. High-Level Committee after considering the advice of the Book Running Lead Manager recommends price band/floor price to Alternative Mechanism.
    6. Alternative Mechanism decides on the price band/floor price, method of disinvestment, and price discount for retail investors and employees.
    Minority Stake Sale through OFS involves the following steps:
    1. DIPAM forms a High-Level Committee (HLC) consisting of officers from different departments.
    2. HLC recommends to AM the extent of minority stake to be divested.
    3. AM considers HLC's recommendation and gives in-principle approval.
    4. Merchant bankers-cum-selling brokers/Legal Advisors are appointed with the recommendation of the Inter-Ministerial Group (IMG).
    5. DIPAM, along with the Administrative Ministry and CPSEs, undertakes Non-deal Roadshow's
    6. Merchant Bankers recommends timing, amount of shares and discount to be offered.
    7. HLC considers recommendations of the Merchant Bankers and recommends timings and pricing to the AM.
    8. Alternative Mechanism decides on the price band/floor price, method of disinvestment, and price discount for retail investors and employees.
    Buyback of Government Shareholding by a CPSE involves the following steps:
    1. CPSE's Board of Directors considers the Buyback as per the provisions contained in the Companies Act and the existing guidelines issued by DIPAM based on its net worth and cash balance, unless exempted by the Inter-Ministerial Committee for Monitoring of Capital Management and Dividend in CPSEs.
    2. The HLC recommends to AM on the Government's participation in CPSE's offer of buyback.
    3. Alternative Mechanism approves the participation of the Government in the Buyback and offer of Government's equity in the Buyback.
  3. For strategic disinvestment/minority stake sale of subsidiaries/units/sale of stakes in Joint Ventures by the holding/parent Public Sector Enterprises.
    Cabinet in its meeting held on 18-05-2022 empowered the Board of Directors of the Holding/Parent (PSE) to recommend and undertake the process for disinvestment (both Strategic Disinvestment and Minority Stake sale/closure) of their subsidiaries /units/stake in JVs. In this regard, AM has been delegated power of CCEA for in-principle approval of above disinvestment proposal which is being processed by DIPAM as AM Secretariat. For the guidance of Board of Holding PSE, DIPAM issued 'Guiding principles for undertaking the disinvestment transactions' on 14.09.2022 and Department of Public enterprises issued guiding principles for closure on 31.10.2022. Existing strategic disinvestment cases being handled by DIPAM will continue as per the process.
Question 6: Is there any guidelines on "Capital Restructuring of CPSEs"? What are the salient features of Capital Restructuring of CPSEs Guidelines?
Answer :
In order to enable CPSEs to address critical, inter-linked issues such as leveraging of assets for fresh investment, capital restructuring, and financial restructuring, a Comprehensive guideline was laid down in 2016 for capital restructuring of CPSEs. These guidelines were issued by the Department of Investment and Public Asset Management (DIPAM) on 27.05.2016. These guidelines supersede all previously issued guidelines on the subjects under reference by various Ministries/Departments from time to time and comprehensively deal with the inter-related issues on payment of dividend, buy back of shares, issue of bonus shares and splitting of shares etc.

Some of the salient features of these Guidelines are as follows:
  1. These guidelines shall apply to all corporate bodies where GoI and/or Government controlled one or more body corporates have controlling interest. It shall not apply to body corporate which is prohibited from distribution of profits to its members, e.g. companies set up under section 8 of companies Act, 2013 or under extant provision of any other Act or which has accumulated losses.
  2. These guidelines stipulate eligibility conditions for CPSEs for payment of dividend, buyback of shares, issue of bonus shares, and splitting of shares etc.
  3. The focus of these guidelines is on optimum utilization of funds by CPSEs/Government to spur economic growth. The CPSEs will have a professional look at the surplus funds available with them and if they do not have plans to deploy them optimally for business purposes, they should explore other options of capital restructuring. The CPSEs have been given the flexibility to adopt suitable investment management strategies for raising fresh investment from the capital market for expansion and growth.
  4. The GoI's nominee director(s) on the board of CPSEs have been made more responsible by ensuring that GoI's interests as a majority shareholder investor are to be duly represented through them in the CPSEs. Hence, they should discharge their responsibility in a way to ensure efficient allocation of GoI's investment in CPSEs for growth and economic development and compliance of the guidelines.
  5. In case any CPSE is not able to comply with any of the guidelines due to some unforeseen exceptional situation, provisions have been made to ensure that such issues are duly considered upto certain level by the Administrative Ministry in consultation with the Financial Adviser for providing exemptions to CPSEs through a well-defined procedure, on a case to case basis.
Question 7:What is Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF)?
Answer :
An Exchange Traded Fund is a basket of stocks that reflects the composition of an Index, like Nifty 50. Exchange Traded Fund trading value is based on the net asset value of the underlying stocks that it represents and can be bought and sold throughout the trading day like any stock. The CPSE-ETF provides a mechanism for the GoI to monetize its shareholding in those CPSEs that eventually form part of the CPSE ETF basket, in a stock-neutral, time-efficient and non-disruptive manner. Through various offers of CPSE-ETF and Bharat-22 ETF, Government could realize disinvestment proceeds of Rs.98,949 crore since 2016-17. However, there is now limited scope of disinvestment through existing ETF window as many underlying Stocks in CPSE-ETF and Bharat-22 ETF have reached close to 51% level of GOI equity or some stocks in the ETF basket are no longer available for disinvestment due to strategic disinvestment or other reasons. Also, there has been concern that large and repeated tranches of Equity ETF were acting as a disincentive for investors in PSU stocks due to price overhang. Therefore, Government has now decided to pause employing Equity ETFs as a tool for minority stake sale.
Question 8: How are the disinvestment proceeds used?
Answer :
The proceeds of disinvestment are credited into National Investment Fund (NIF) constituted in November, 2005 and are used for the approved purpose, as decided from time to time. Presently, the disinvestment proceeds are credited to the existing NIF which is a "Public Account" under the Government Accounts and the funds would remain there until withdrawn /invested for the approved purposes. The proceeds from disinvestment are being used to finance developmental/infrastructure/social schemes/projects.
Question 9: What are the disinvestment targets and receipts over the years?
Answer :

Rs. In crore

Year Target Actual
2018-19 80,000 84,972
2019-20 65,000 50,300
2020-21 32,000 32,886
2021-22 78,000 13,534
2022-23 50,000 35,294