FinMin wants SBI to put off FPO plans till merger
The government is not in a hurry to dilute its equity in the bank, which stands at 59.73%, till the valuation is right. The Centre may instead ask SBI to go in for a rights issue to ensure its stake remains constant. It is also open to making a budgetary allocation for infusing funds into the bank.
“The bank does not have to tap the capital markets right away. We expect the valuation of the bank to go up once the subsidiaries are merged. Pending approval for its holding company proposal may also contribute to SBI’s valuation,” a government official said.
“The bank had proposed an FPO even when its stock price was Rs 900. It subsequently touched Rs 1,600 and could climb further. Therefore, it is important to get the right price,” the official added.
“There is the option of a rights issue so that government holding in the bank remains constant. And we could also firm up plans for infusing funds into SBI. We are examining various options and will decide on them over the next fortnight,” another official said.
The rights issue will allow the bank to raise tier-I capital without diluting the government shareholding. To keep up with its expansion needs, including a growing portfolio, acquisition plans and new businesses, the country’s largest bank has limited options as far as raising capital and ploughing back profits are concerned.
It has the option of diluting government equity from 59.73% to 55%. Once the SBI Act is amended, the minimum government holding can come down to 51%. Officials feel it is more advisable to leave some headroom for raising capital than to exhaust all options by reducing government equity to 51% in one go.
“There are options before the bank—debt instruments can be used. The rights issue option will be a cost to the government, but they will also get due returns. Even if the FPO does not happen this year, the bank will not be starved of funds to meet its needs immediately,” an SBI source said.
The government has also indicated that it is in favour of SBI’s subsidiaries—State Bank of Patiala and State Bank of Hyderabad—being listed before they are merged with the parent.
“Our internal calculation shows that the SBI scrip will fare better once the subsidiaries are listed and then merged into SBI,” an official at an unlisted associate bank told . Meanwhile, the government is also confident that SBI’s holding company proposal will be eventually cleared by RBI. This is also expected to unlock value for the parent.
