Government to decide on SBI’s rights issue in 2 weeks
Government is likely to take a decision on public sector lender State Bank of India’s proposed plan to raise about Rs 18,000 crore through a rights issue in the next fortnight.
“It is likely that government would take a call on the capital raising plan for SBI in the next 15 days,” official sources said.
“The issue is awaiting the Finance Minister’s approval. Once that is done, it will put it up before the Cabinet, which is likely to be done before Parliament begins its winter session,” the sources said.
With Parliament session likely to be advanced to November 14 because of upcoming Gujarat elections, a note on SBI’s capital raising plan may be put up before the Cabinet within a fortnight, they said.
The Government will have to get Parliament sanction to subscribe to the issue, which is likely to cost it about Rs 10,000 crore. The bank is likely to raise Rs 17,000 crore to Rs 18,000 crore through the rights issue to meet regulatory requirement and business growth, the sources said.
Although the rights issue would not change the shareholding pattern, the unsubscribed portion of the issue by existing retail shareholders could increase the government share in the country’s biggest lender.
Government’s stake in SBI, which is currently at 59.73 per cent, could go up after the rights issue if some investors did not take up the offer. Retail investors currently have around four per cent shares in SBI.
As SBI’s share price is currently ruling at over Rs 2,000, some investors, especially retail ones, may not subscribe to the rights offer. The government’s holding in SBI may go up to 61-62 per cent, depending on the unsubscribed portion of rights issue, the sources said.
SBI Chairman O P Bhatt had earlier said the bank needs not only the growth capital but also the funds for implementation of Basel II norms which benchmark the quantum of capital that a bank is required to put aside for covering the financial and operational risks.
“The bank requires close to Rs 5,000 crore just for meeting Basel II norms,” he had said.
The Reserve Bank of India has asked all banks having overseas operations to be Basel II compliant by March 2008.
“We also need capital for complying with AS15 (accounting standard 15 norms relating to employees statutory dues). Banks like SBI would require between Rs 4,000 crore to Rs 5,000 crore. These two needs (Basel II and AS15) alone would require Rs 10,000 crore,” Bhatt had said.
According to government estimates, SBI needs to raise around Rs 89,600 crore over the next five years.
SBI had on Saturday announced a 36.04 per cent rise in net profit at Rs 161.14 crore during the second quarter this fiscal as against Rs 118.44 crore in the corresponding period of 2006-07. Total income rose by 33.42 per cent at Rs 1,365.82 crore during the quarter ended September 30, 2007 from Rs 1,023.73 crore in the second quarter last fiscal.