Govt to buy RBI's 59.7% stake in SBI

CABINET DECIDES

The Union Cabinet today cleared the road for transfer of the Reserve Bank's 59.7 per cent stake in State Bank of India, the country's largest commercial bank, to the government by month-end.

The Union Cabinet, chaired by Prime Minister Manmohan Singh, today approved of an ordinance to amend the State Bank of India Act, 1955, as the transaction has to be completed by June 30 (the end of the RBI's financial year).

A Bill will be moved in the coming session of Parliament to replace the ordinance.

In Budget 2007-08, Finance Minister P Chidambaram had announced that the government would buy the RBI's stake in SBI at an estimated market value of Rs 40,000 crore to separate ownership and regulatory functions of the central bank.

The market value was determined taking the SBI share price at Rs 1,300 in January. However, the actual cost will be determined by the market forces as the current SBI share price is hovering around Rs 1,323.

The government will make the payment in cash as the commercial bank is a listed entity. However, the transaction will have no revenue impact as the money paid to the RBI will come back to the government as dividend. There will be no net outflow from the exchequer.

Finance Minister P Chidambaram recently said the government's additional borrowing in the first half of 2007-08 would be utilised to buy the RBI's holding in SBI.

The government has raised Rs 5,000 crore from the market outside its scheduled borrowing programme for the first half of this fiscal.

Depending on the advance tax mop-up on June 15, the finance ministry will decide how the Rs 40,000 crore would be arranged for a short period to buy the RBI stake in SBI.