Mumbai, Jan. 4
STATE Bank of India may join the band of banks likely to raise equity capital in the next fiscal year, mainly to satisfy a new international banking framework that a host of central banks plan to introduce in 2006.
"If it were not for credit growth, we were comfortable (with capital adequacy). Considering the high credit growth of this year continues, we may need to raise capital next (fiscal) year," Mr A.K. Purwar, Chairman, SBI, told newspersons after launching Horizon, SBI Life's new unit-linked insurance product.
Mr Purwar said credit growth currently was around 26 per cent, indicating good economic growth. He, however, did not expect the growth to sustain at the same level next year. To a question whether that indicated that the economy is currently overheated, Mr Purwar said, "No way. Absolutely not."
At the end of September 2003, SBI had a capital adequacy of 13.07 per cent, equity of Rs 526 crore and reserves of over Rs 19,700 crore.
Several public sector banks will have to raise capital before new international banking norms, commonly known as Basel-II norms, are implemented in 2006. Already, banks such as Dena Bank, Punjab National Bank and Bank of Baroda are preparing public offers to raise equity capital.
Basel-II norms, known so because central bankers had gathered in Basel in Switzerland to draft them, collectively form a framework aimed to help strengthen banks and consequently reinforce the international financial architecture. As per the norms, which give much importance to mitigating different types of risks, many banks need to have a higher level of capital than they do now. Even though the new standards prescribe certain minimum capital adequacy, banks themselves can, in consultation with central banks, decide their capital requirement.
Overseas acquisitions: Mr Purwar said that SBI expected to soon announce an acquisition in the African or Asian region. Declining to comment on specifics, he said the bank expected to complete the purchase before fiscal 2004-05 ended.
He also said that SBI was open to buying a regional bank. He, however, said there was nothing on the cards at the moment. "It is a statement of intent," he said.