The Hindu Business Line : SBI rights issue gets go-ahead

New Delhi, Nov. 30 Armed with a Cabinet nod, State Bank of India (SBI) is likely to come up with a rights issue of shares that would help mobilise about Rs 16,700 crore before end-March 2008. The capital-raising is intended to fund the business growth of the country’s largest commercial bank and also to meet capital requirement norms as set out under Basel-II norms

The Centre would subscribe to Rs 10,000 crore worth of shares offered under the rights issue. The pricing of the shares would be in line with the existing SEBI guidelines and the quantum of shares to be issued and the proportion of rights entitlement is yet to be decided. These are likely to be worked out soon by SBI in consultation with the Government and SEBI. The Centre has 59.73 per cent stake in SBI.

Govt investment

The Government would invest Rs 10,000 crore by issuing bonds to SBI. Through bond issue and redemption of such securities at a later date, the Government is basically acquiring SBI shares on a deferred payment basis.

These bonds, whose coupon rate is likely to be around 7.9 per cent, would be marketable and also have Statutory Liquidity Ratio (SLR) status. The tenure of the bonds and their face value are yet to be decided.

A separate Securities Redemption Fund would be created for redeeming the government securities on the due date. The redemption fund would be funded out of dividend and tax flows from SBI after taking care of the interest to be paid to SBI for the securities.

This fund would be built year after year to take care of redemption of bonds on the due date.

The rights issue transaction would be completed within the current financial year and the securities redemption fund would be created thereafter.

Dividend and taxes

The Government expects to receive around Rs 1,358 crore by way of dividend and taxes from the bank during 2008-09 as against an expenditure of about Rs 790 crore as interest to be paid to the bank for proposed securities.

In subsequent years, the Government is likely to receive higher amount of additional revenues (Rs 1,552 crore in 2009-10 and Rs 1,892 crore in 2010-11 and thereafter).

Fiscally neutral

The Union Finance Minister, Mr P. Chidambaram, told reporters that the transaction would be fiscally neutral for the Government during the current year. He also said that no shortfall was expected in the fund and pointed out that the increased capital base of SBI would provide a multiplier effect to the overall performance of the bank and thereby result in additional revenues to the Centre in the coming years.

Mr Chidambaram said that the Government had zeroed in on rights issue after examining all options. Mr Chidambaram also said that he does not expect any shortfall in the securities redemption fund in the coming years.

On whether the Government proposes to take the rights issue route for public sector banks as well, Mr Chidambaram said that there was no rights issue proposal from any public sector bank before him at the moment.