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The government, it appears, wants to consolidate its shareholding in State Bank of India in the wake of the lender getting catapulted into the league of top 50 global banks.
This was underscored by the fact that when the government approved its ₹15,000-crore qualified institutional placement (QIP) issue last month, SBI was directed to ensure that the government's shareholding in the bank does not fall below 52 per cent, as against 51 per cent specified in the SBI Act. This clearly shows that the government, as the promoter and majority shareholder, wants to keep a firm grip on India’s largest bank.
It has been infusing massive doses of capital — ₹2,970 crore in FY15, ₹5,993 crore in FY16 and ₹5,681 crore in FY17 — in the bank, against preferential issue of equity shares.
It may be noted that when the SBI Act was amended in 2010, the government’s minimum required shareholding in the bank’s issued capital was reduced from 55 per cent to 51 per cent.
Further, according to the Banking Companies (Acquisition and Transfer of Undertakings) Act, the Central Government, at all times, is required to hold not less than 51 per cent of the paid-up capital of each nationalised (public sector) bank.
Post the QIP issue, shareholding of the government in SBI is at 57.07 per cent as against 62.22 per cent prior to the issue.
Raising the minimum government shareholding requirement (from 51 per cent to 52 per cent) in SBI comes at a time when it faces competition in all its principal areas of business and the government wants to push consolidation among public sector banks.
Curbs on shareholdingThe bank cautioned that the requirement of minimum 52 per cent government shareholding could result in restrictions in its equity capital raising efforts as the government may not be able to fund any further investments that would allow it simultaneously maintain its stake at the minimum of prescribed limit and seek funding from the capital markets.
According to the document “…As the Indian economy grows, more businesses and individuals will require capital financing. In order to meet and sustain increasing levels of growth in capital demand, the Bank will need to accrete (strengthen) its capital base, whether through organic growth or, more likely, capital market financing schemes.
“If the bank is unable to grow its capital base in line with demand, its business, financial prospects and profitability may be materially and adversely affected.”
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