Govt against capital infusion in SBI

State Bank Of India | Bank - Public | BFSI | BSE: 500112 | NSE: SBIN

08 Jun 2009 Evaluate

The finance ministry is not in favour of State Bank of India’s (SBI) proposal for additional funding from the government. SBI Chairman OP Bhatt had recently said the lender had sought government permission to raise Rs 20,000 crore Tier I capital — or the bank’s core equity capital — in the current financial year, preferably through a rights issue. The rights issue would entail a contribution of Rs 12,000 crore from the government.

The finance ministry thinks the bank should wait for amendments to the SBI Act, which, among other things, proposes to reduce the lower limit on government holding from 55 to 51 per cent. Once the amendment is through, SBI, in which the government holds 59.41 per cent, will be able to raise capital through a follow-on public issue.

According to the bank’s assessment, to meet its growth targets, SBI, the country’s largest bank, needs Rs 60,000-70,000 crore over five years, of which around 10 per cent would come from internal accruals. The bank is looking to grow its asset book by around 25 per cent, after a 30 per cent increase in the last financial year.

Even with the present level of Tier I capital, SBI had room to raise over Rs 25,000 crore Tier II, or secondary, capital. This would help the bank meet its immediate capital requirements. The government will need to re-introduce the State Bank of India (Amendment) Bill in Parliament and push for its early passage to ensure the lender’s growth ambition are not constrained for want of capital.

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