Mumbai: State Bank of India (SBI) hopes to receive an injection of up to $2 billion from the government this fiscal year, its chairman said on Wednesday, a day after Moody’s downgraded its standalone rating due to rising bad loans and a thinning capital cushion.
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Also Read | Moody’s downgrades State Bank
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Shares in the country’s dominant lender continued to slide, falling as much as 3.9% to their lowest in more than two years and helping drag the broader market into negative territory.
“We have taken note of this message and recapitalization, we are hopeful, will be completed by the end of December 2011 and at the most, if it is stretched, it will go to March,” chairman Pratip Chaudhuri told a media briefing.
He said the bank has outlined to the government scenarios under which it would need Rs14,000 crore to Rs21,000 crore ($2.84 billion-$4.26 billion) of state capital over five years, and would be “comfortable” with Rs3,000 crore to Rs10,000 crore of fresh government capital in the current fiscal year.
The size of the injection depends on the contribution of minority shareholders as well as the surplus generated by the bank’s operations, he said.
Last month, SBI, which is 59% owned by the government, doubled its overseas borrowing target to $10 billion, and Tuesday’s rating cut could make its fund-raising more expensive and squeeze margins at its overseas operations.
However, Choudhuri earlier told TV channel ET Now that SBI does not expect overseas borrowing costs to rise “significantly” as a result of the Moody’s move, with medium-term note borrowing costs rising 1-2 basis points.
SBI, which has a market value of about $23 billion, is currently borrowing overseas funds at LIBOR plus 220-225 basis points, Chaudhuri told ET Now.
The bank has delayed a planned $4.5 billion rights issue, which would bolster its capital position, as India’s cash-strapped government is seen to be reluctant to stump up its share of the offer in order to maintain its stake.
Moody’s had said SBI’s low capital adequacy and recent failure to raise capital prompted the downgrade of its “Bank Financial Strength Rating” to D+ from C- on a scale of A to E.