New Delhi: The finance ministry on Wednesday ruled out a rights issue by State Bank of India (SBI) in the current fiscal but reiterated the government’s commitment to capitalize the country’s largest lender.
“We are waiting for the third quarter results of SBI. Since tier-1 (core) capital has two constituents, equity and profits, we would determine the capital infusion needed after looking at SBI’s profitability,” D.K. Mittal, secretary of financial services at the finance ministry said at the sidelines of an economic editors conference in New Delhi.
While ruling out an immediate rights issue, Mittal said the bank would be capitalized through other means, without specifying them.
A SBI building in Mumbai (File photo )
Finance minister Pranab Mukherjee said on Wednesday the government would infuse sufficient capital into SBI and other public sector banks to ensure tier-1 capital is above 8%.
SBI had asked the government for permission to float a rights issue of at least Rs 20,000 crore to boost its core capital, which had fallen to 7.6% as the bank set aside funds to meet pension liabilities and provided for bad debts. But the government has been reluctant to give SBI the go-ahead for a rights issue as it would have had to spend around Rs 12,000 crore to maintain its stake at 59.4% in the bank.
Rating agency Moody’s had downgraded SBI earlier this month, citing its low core capital and weakening asset quality.
The bank’s bad debts, as a percentage of advances, reached a three-year high of 3.52% on 30 June against the industry average of 2.3% on 31 March, Moody’s said.
SBI chairman Pratip Chaudhuri had said after the downgrade that the bank expects the government to infuse between Rs 3,000 crore and Rs 10,000 crore before the end of the current fiscal.
The finance minister in this year’s budget had set aside Rs 6,000 crore for the current fiscal to help public sector banks maintain core capital to risk-weighted asset ratio of 8%.
Mittal said the finance ministry may seek additional funds in the range of Rs 10,000-20,000 crore in the second batch of supplementary demands for grants in Parliament, to capitalize six banks, including SBI, Bank of Baroda, Bank of India and Syndicate Bank. “We will finalize the banks’ capital requirements by 15 November,” he said. “The major portion of the capital will go to SBI.”