Govt likely to soon approve SBI capital infusion

Govt likely to soon approve SBI capital infusion

New Delhi: The government is expected to provide capital support to the country’s largest lender State Bank of India (SBI) during the current fiscal and a decision in this regard will be taken soon.

“We will capitalise SBI adequately so that the Tier-I capital is maintained over 8 per cent, in line with the government’s intent," official sources told PTI.

The finance ministry received a proposal from SBI in this regard a few weeks ago, sources said, adding that it is being examined and a decision will be taken shortly.

As per the proposal, SBI requires 20,000 crore to fund its growth plans over the next two fiscals.

Based on the proposal, sources said, various possibilities are being looked at for the capital infusion. It could be by way of a rights issue, preferential share issue, warrants, etc.

It is too premature to comment on the exact mechanism for the capital infusion, as all the options are still being explored, the sources said.

The government is committed to providing adequate capital to all public sector banks so as to maintain their Tier-I capital at 8% and the government’s stake over 58 per cent, sources added.

As of June, 2011, the Capital Adequacy Ratio (CAR) of SBI stood at 11.6%. Of this, Tier-I capital stood at 7.6% at the end of first quarter, against the minimum 8% level desired by the government.

Earlier this month, SBI chairman Pratip Chaudhuri had said, “We are already in a dialogue with the government for the rights issue to bring new Tier-I... It should happen by the end of this fiscal."

The government is committed to maintaining the public sector character of the bank and after amendment of the State Bank of India Act, the percentage of government holding cannot go below 51%, he had said.

“So in various scenarios, what would be the requirement of the rights issue, what would be contribution required for the government? The number would be as high as 14,000 crore to 9,000 crore," he had said..

“Rs 14,000 crore if it retains at 59 per cent, 9,000 crore for 51% and 11,000 crore for 55%," he added.

Currently, the government has a 59.4% stake in the bank. In case a rights issue is approved and the government wants to retain its holding at the current level, it would need to subscribe to 59.4% of the total rights being issued.

It is to be noted that the country’s largest lender had raised over 16,000 crore through a rights issue in 2008. In the last SBI rights issue, the government contribution was in the form of bonds to the bank instead of cash.