Govt to buy SBI stake next year

Budgetary provision of Rs 25,000-30,000 cr expected.

The government has finalised plans to buy the Reserve Bank of India's stake in State Bank of India (SBI) in the next financial year. The government will be buying the central bank's entire stake of 59.73 per cent in the country's largest bank.

The Centre is planning make a budgetary provision of Rs 25,000-30,000 crore in the next year's Union budget.

According to banking sources, the stake transfer will be decided on the basis of the six-month average stock market price.

The SBI scrip was quoted at Rs 1032.90 on the BSE today.

The government plans to pick up the stake in June 2007, which also marks the end of the financial year for the Reserve Bank of India.

After the sale of the stake, the amount will be surplus in the books of the RBI which could be transferred as dividend to the government in July. Thus the government will have to manage its finances with a deficit, if at all, for a maximum period of a fortnight.

The RBI had, in principle, earlier decided to exit from banks and institutions to avoid conflict of interest as a regulator.

The committee on fuller capital account convertibility headed by S S Tarapore, however, has said the proposed transfer should be put on hold as banks will require additional funds to bolstering their capital in the Basle II regime.

Since the government is not in a position to adequately fund the requirements of all banks, RBI was the preferred owner.

The committee is also of the view that SBI remains the best managed bank till date even with RBI as the stakeholder.

Earlier, the government had decided to issue special securities to compensate RBI for the stake without violating the rules on fiscal responsibility and budget management.

Unlike other banks, SBI is governed by the SBI Act, which stipulates a minimum mandatory holding of 55 per cent by RBI.

Recently, the Cabinet approved amendments to the Act to facilitate raising of capital by the bank, which would mean a dilution of up to 51 per cent like other state-run banks