Mumbai: The government on Monday introduced a Bill in Parliament seeking to dilute its stake in State Bank of India (SBI), the country’s largest lender, to 51% from 59.1%. Going by the current share price, SBI will be able to raise about Rs20,000 crore from the market if it wants to pare the government stake to 51% at one go.
Dilution: The government will not divest its holding in the market, but its stake will fall after SBI raises fresh capital and expands its equity. Hemant Mishra / Mint
The government already has Parliament’s nod to dilute its stake in SBI to 55%.
The proposed plan ensures that the bank raises enough capital to support its credit growth. Under the existing norms, for every Rs100 worth of assets, Indian banks need Rs9 as capital.
SBI’s loan growth this year has been around 19%, against the industry average of 15%.
The government will not divest its stake in the market, but its holding will come down as the bank will raise fresh capital and expand its equity.
Analysts hailed the move, but cautioned that even if the Bill is passed, the Centre is unlikely to allow SBI to hit the market in the present year with full dilution as the government plans to raise Rs40,000 crore by divesting its stake in public sector units (PSUs). In other words, the market may be overcrowded with PSU paper.
SBI’s current equity capital is Rs634.88 crore. Following the dilution, it will rise to Rs735.71 crore and SBI can issue 100 million extra shares. At current market price, that translates into Rs20,702 crore, according to analysts.
In his Budget speech for 2011, finance minister Pranab Mukherjee had said the government plans to pump Rs16,500 crore into state-owned banks to recapitalize them.
If Parliament passes the Bill, SBI’s equity base will increase substantially, analysts said.
“State Bank desperately needs money to keep pace with the growing economy. If the Bill is passed, the bank will not have to worry about its financial needs for at least three years,” said an analyst with a local brokerage, who did not want to be named because of company policy.
SBI officials did not return calls.
O.P. Bhatt, SBI chairman, had on an earlier occasion said that the bank needs Rs20,000 crore in fiscal 2011 and Rs40,000-50,000 crore in the next five years to fund India’s expanding economy.
SBI has been trying various options to raise money from the market to support asset growth.
In February 2008, it raised Rs16,736.31 crore from the market through a rights issue, in which investors were offered one share for every five held.
Bhatt recently said the bank plans a rights offering of Rs10,000-20,000 crore in the next fiscal and sought government support for it.
Mukherjee moved the State Bank of India (Amendment) Bill, 2010, aimed at allowing “reduction of shareholding of the Central government from 55% to 51% consisting of the equity shares of the issued capital”.
The Bill also seeks to increase the authorized capital of the bank to Rs5,000 crore from Rs1,000 crore, besides seeking Parliament’s nod for the issuance of preference shares by SBI.
Following the tabling of the Bill, SBI shares gained 3.3% to Rs2,114 before closing at Rs2,070.25, up 1.2%, on the Bombay Stock Exchange.
Analysts cautioned that though SBI’s needs will be met for now, further reductions in stake will be difficult as the government has pledged to hold a minimum of 51% in state-run banks.