Government looking into SBI rights issue, says Banking Secretary

Mumbai | Updated on May 22, 2011 Published on May 22, 2011

The Finance Ministry has said that it is “looking into the matter” of State Bank of India's over Rs 20,000-crore rights issue, which has been in the works for over a year now.

Asked about the SBI's rights issue on the sidelines of a function here, the new Banking and Financial Services Secretary, Mr Sashikant Sharma, told PTI, “We are looking into the matter.”

Mr Sharma's predecessor Mr R. Gopalan had in February said that the Government would clear the rights issue in the last fiscal itself.

Recently, there have been reports that the rights issue may not happen this fiscal, considering the tight finances of the Government, which holds nearly 60 per cent stake in the bank.

Bonds out of picture

If the Government allows the issue size at Rs 20,000 crore, it will have to cough up between Rs 11,000 crore and Rs 12,000 crore towards subscribing the issue to maintain its stake in the bank at 59 per cent.

In the last SBI rights issue, the Government had issued bonds to the bank instead of giving cash. But that is not an option now, as the Finance Ministry has decided against off-budget financing. Moreover, in this year's Budget, no provision has been made for such a huge outgo towards the rights issue.

Earlier this week, the SBI Chairman, Mr Pratip Chaudhuri, while announcing the annual results on May 17, had said the issue is “round the corner”.

“There is nothing to worry about the SBI rights issue. We are confident that the Government is fully committed and it (the rights issue) is round the corner,” Mr Chaudhuri had said.

With Tier-I capital at 7.77 per cent, he said there was no urgency for capital at present and it is also comfortable for the full fiscal.

As on March 31, 2011, the bank had a Tier-I capital (equity and free reserves) of 7.77 per cent of its risk-weighted assets and a total capital adequacy ratio of 11.98 per cent which was higher at 13.98 per cent in FY10. Though this is comfortable, the bank's growth could be affected if new capital is not raised.

Last year, the bank announced a Rs 39,000-crore capital raising plan for the next five years, a chunk of which was to come from the rights issue.

Bill path

In March, Parliament passed the SBI Amendment Bill, paving the way for the Government to bring down its stake in the bank to 51 per cent from close to 60 per cent — a move that throws up other fund raising options such as a follow-on equity issue.

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Published on May 22, 2011
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