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SBI rises 3.39 pc on Cabinet approval to Act changes

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Bank's stock jumps 3.39% on allowance to increase capital

Our Bureau

Mumbai, Aug. 25

Shares of State Bank of India (SBI), the country's largest commercial bank, rose by 3.39 per cent on Friday to close at Rs 903.75, the highest in more than three months, after the Union Cabinet gave approval to amendments to the SBI Act.

The amendments will enable the bank to access fresh funds from capital markets. The stock was up by Rs 29.65 from Thursday's close of Rs 874.10. The Government agreed to amend SBI Act 1955, where the state's stake in SBI, held through the RBI, can come down to 51 per cent as against the existing 59.73 per cent. This means the bank can dilute up to 8.7 per cent of the promoter's equity.

The Bill is likely to be introduced in the next session of Parliament. "If the Bill is passed, it will help SBI to increase its Tier I capital and provide it with greater flexibility. It is always an advantage to have a buffer that will help to raise the Tier I capital and provide comfort for capital adequacy," said a banking analyst.

SBI can either issue bonus shares or preferential shares. Currently, there is no provision in the Act that allows SBI to make calls on fresh issue of capital in instalments.

If the Bill is passed in the Winter session, the bank would be able to raise fresh funds in the current fiscal itself, said a SBI source.

"The amendment will be a benefit for the public as government intervention in the bank will reduce to that extent and consequently public and institutional ownership will increase. This will give rise to a positive sentiment among the shareholders," said Mr Huzaifa Suratwala, Banking Analyst, Emkay Share and Stock Brokers Ltd.

Analysts maintained that the amendment would help SBI to grow faster and boost capital.

According to the existing law, it is mandatory for the State to own at least 55 per cent of SBI.

A large number of retail participants would be able to invest in the shares of SBI once the Bill is cleared.

Related Stories:
Cabinet nod for SBI Act amendment

(This article was published in the Business Line print edition dated August 26, 2006)
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