1:5 SBI rights at 35% discount

The board of State Bank of India (SBI), the country's largest bank, today approved a 1:5 rights issue at a 35.42 per cent discount to its closing price on the Bombay Stock Exchange (BSE) today.

The bank will raise Rs 16,736.31 crore in February by offering one share for every five held at Rs 1,590 apiece. The stock closed at Rs 2,462.25 on the BSE today.

This is the first rights issue by a public sector bank, which will issue 631.4 million shares after the rights issue.

"We are coming to the market after 14 years. We have not given our shareholders any bonus shares, so we have decided to give them a robust discount," said a senior SBI official.

The bank has set February 4 as the record date for the issue.

The bank has also decided to issue shares to its 200,000 employees under an employees stock purchase scheme, the first by a public sector bank.

"This is a separate issue. It will be offered with the rights issue, but may extend beyond it. Employees across the board will be eligible, but the price and amount of shares have to be decided," said the official.

DSP Merrill Lynch, Kotak Mahindra Capital, Deutsche Bank, Citibank and CLSA Securities have been appointed merchant bankers to the issue. SBI Caps will be an advisor to the issue.

The government will infuse Rs 10,000 crore to keep its holding in the bank at 59.73 per cent. Retail investors hold 5.96 per cent in the bank.

The bank needs to raise Rs 10,000 crore to comply with an additional capital requirement under Basel II norms, which are guidelines to banks for measuring risk.

The funds are also being raised for additional provisioning required under the revised accounting norms for employees' retirement benefits known as accounting standard-15 (AS-15).