The SBI Chairman, Mr Pratip Chaudhuri's statement on Wednesday providing a timeline for the Rs 20,000-crore rights offer may provide relief to investors. The December 2011 target date for the offer would give a much-needed boost to the bank's capital adequacy ratio.

Slippage in Tier-1 capital ratio from the required 8 per cent to 7.7 per cent as of March 2011, created market concerns about a delay in rights issue taking a toll on the leveraged loan book of the bank.

Besides capital requirement to support the loan book growth, there are more provisions expected (such as additional NPA provisions required) in the current fiscal. Given these needs, the bank's internal accruals may not be sufficient to maintain the capital adequacy.

CAR

Post rights offer, the capital adequacy ratio may improve by more than 2.4 percentage points to over 14 per cent. This will not only help the bank support future loan growth but also increase its headroom to raise other hybrid and Tier-II instruments for future requirement.

Slippage

The capital adequacy dropped from 13.1 per cent in December 2010 to 11.98 per cent in March 2011 due to a one-time charge to the tune of Rs 7,927 crore which depleted reserves and shrunk the net worth.

SBI had raised Rs 16,000 crore in early 2008 by way of rights issue to shore up its capital base when it was in a similar situation.

The upcoming rights issue would entail about Rs 12,000 crore of capital infusion by the Government, a sum that has not been provided for in the 2011-12 Budget.

This may put pressure on the fiscal deficit of the Government. Clarity is yet to emerge as to whether the Government would once again resort to issuing of bonds or whether it will infuse cash.

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