There is a case for SBI rights issue, says FM

MUMBAI: There is a strong case for a rights issue to raise capital for State Bank of India, according to finance minister P Chidambaram. "I have heard their case for capital requirements, and the government will find ways to provide further capital for SBI," he said, speaking after a meeting with the SBI board. The government will also consider the capital needs of other public sector banks, the finance minister added.

SBI, the country’s biggest bank, hopes to raise up to Rs 20,000 crore by March since the earlier target of raising the amount by December seems unlikely. The government had already given the bank an in-principle approval to raise the capital through a rights issue.

However, a section of the finance ministry maintained the bank must instead go in for a follow-on public offer since providing for more than Rs 10,000 crore in the current fiscal year will impact fiscal deficit substantially. In his latest statement, the finance minister said, “It all depends on how the numbers pan out, but there is a very strong case for a rights issue.”

It is understood that the government, the majority shareholder in SBI, is not in favour of a follow-on public issue, where its stake will be diluted from the current 59.7% to the 55% limit, as prescribed by the SBI Act. The preference share route for SBI is also not an option, pending amendment of the Act.

A rights issue would allow the bank to raise tier-I capital without diluting the government shareholding. It is believed that the ratio would be 60:40, where 60% would be subscribed by the government. The bank has been exploring various options to raise funds, including a rights issue, a public offer and preferential share sale.

In October, SBI chairman OP Bhatt had said the bank was looking at an equity issue of Rs 10,000 crore, which would in effect dilute the government stake by about 2.5%. He had also said Indian banks were faced the problem of scale. SBI is the largest bank in the country, but ranks only 70th internationally in terms of capitalisation.

The rise in bank’s capitalisation will help it become internationally competitive. Mr Bhatt had also mentioned the bank would require funds not only for growth capital, but also to meet Basel-II requirements and AS-15 norms. The SBI shares on the Sensex rose 2.2% to a record Rs 2,346.15 on Wednesday. The shares have risen more than 88% this year, outperforming the main index which gained nearly 45%.