What is green shoe option that government is using to sell additional stake in Bank of Maharashtra?

The government is selling 6% stake in public sector lender Bank of Maharashtra through offer for sale (OFS), which opened on 2 December and will close on 3 December (today).

Giving details of the same on social media platform X (formerly Twitter), Arunish Chawla, secretary, Department of Investment and Public Asset Management (DIPAM) said that the OFS comprises 5% equity divestment, with an additional 1% as a green shoe option.

Govt exercises green shoe option for BoM OFS

This green shoe option is being exercised today, following overwhelming response from investors on the first day of subscription. Day one OFS was for non-retail investors at floor price of ₹54/share, today's OFS is open to retail investors as well.

On the first day, the OFS was subscribed over 400% or 4.07 times the base 5% size comprising 38.46 crore shares, triggering the green shoe option of additional 1% (7.69 crore shares) available on 3 December. This takes the total OFS to over 46.14 crore shares (6% total stake on offer).

“Given the oversubscription, the government has exercised the green shoe option in full, taking the total divestment to 6 per cent of BoM’s paid-up capital. This will ensure that BoM achieves the Minimum Public Shareholding (MPS) norms,” an official statement said.

What is Green-shoe Option?

An “over-allotment” provision, the green shoe option allows a company to raise more funds than initially planned, by issuing additional securities. It is triggered in case of strong investor demand for the stock.

Overall, the provision helps ensure that a company can efficiently manage oversubscription during listing and maintain better price and liquidity stability.

For investors this means more shares on offer and can also thus reduce share price surge or stock price volatility in case of extremes (low or high demand).

How much will govt gain from BoM divestment?

With floor price of ₹54/share and taking into account 6.34% discount from BoM's closing price of ₹57.66/share on Monday, the Centre is set to gain close to ₹2,492 crore by divesting 6% in the lender.

The government holds 79.60% stake in Bank of Maharashtra and after the divestment, at 75%, will meet the minimum public share (MPS) holding norm of 25%. Markets regulator Securities and Exchange Board of India's Securities Contract (Regulation) Rules mandates that all companies, including PSUs, must have MPS of 25%.

As per SEBI mandate, public sector entities have time till August 2026 to comply.

Notably, the other four banks where MPS threshold is not yet met are — Indian Overseas Bank (94.6%), Punjab & Sind Bank (93.9%), UCO Bank (91%), and Central Bank of India (89.3%).

(With inputs from PTI)