In what is seen as a change of stance, the Finance Ministry today said that it was not looking at a rights issue for capital infusion into State Bank of India (SBI), the country's largest commercial bank.

Ruling out a rights issue for SBI this fiscal, the Financial Services Secretary, Mr D.K. Mittal, said that the Centre may inject capital into SBI through a preferential allotment route. The Centre holds 59.4 per cent stake in SBI and is therefore in a position to influence the capital raising route of SBI.

A preferential allotment to the Government would imply that SBI would not be able to raise capital from other shareholders. It would also mean that the Government is ready to infuse more funds into SBI than what would have been the case in a rights issue.

So far the Finance Ministry and the SBI senior management were mainly in discussions for a rights offering. SBI had earlier suggested a rights issue that would help the bank mobilise about Rs 20,000 crore.

The actual amount of capital infusion into SBI and the instrument that would be used by the Centre would be finalised by November 15, Mr Mittal told reporters on the sidelines of Economic Editors conference here on Wednesday.

Last week, Mr Mittal said that the Government would look to infuse Rs 4,500-6,000 crore in SBI by March 2012.

The recent move of Moody's to downgrade SBI by a notch, owing to the lower capital adequacy ratio and deteriorating asset quality, has negatively impacted SBI's stock performance. The Tier-I capital adequacy ratio of SBI had touched 7.6 per cent as of end June, lower than the regulatory requirement of 8 per cent.

SBI had last come out with a rights issue in 2008, raising over Rs 16,000 crore. In the previous rights issue, the Government had made its contribution through bonds instead of cash. The Centre is now looking to infuse capital into SBI through cash and not through marketable Government bonds.

The Centre has in recent years opted against “below-the-line” expenditure and gone in for cash payments even for certain big ticket items like compensation to oil marketing companies.

The Government had in this year's Budget allocated Rs 6,000 crore for capital infusion in banks. The total capital requirement from the Centre for about six State-owned banks including SBI is estimated at Rs 20,000 crore this fiscal.

SBI's shares closed at Rs 1,909.25 on the National Stock Exchange today, up Rs 42.70 over the previous day's close of Rs 1,866.55.

Pranab assures support for public sector banks

The Finance Minister, Mr Pranab Mukherjee, today asserted that adequate resources would be provided for recapitalisation of public sector banks. He also said that the Government would go in for more allocation of funds through supplementary demand for grants to meet the resource requirements, if any.

“Adequate capital will be injected in State Bank of India and all public sector banks to maintain Tier I capital of 8 per cent,” Mr Mukherjee said at the Economic Editors' conference in the Capital today.

The Government is in the process of drawing a roadmap for capital requirements of public sector banks over the next 10 years. A committee set up by the Department of Financial Services is expected to submit a report by end October.

This committee is also looking into aspects like Basel 3 capital standards, Mr D.K. Mittal, Financial Services Secretary, said.

The Finance Minister also maintained that the recent spate of scams have not affected the investment climate in India. The investment climate is down all over the world, he said.

>krsrivats@thehindu.co.in

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