Finance ministry to assess the proposal in third quarter, issue to come up this financial year.
The proposed rights issue of State Bank of India may hit the market by the end of this financial year. The finance ministry is planning to provide funds to the country’s largest lender by the end of the third quarter (October-December), after making an assessment of its capital requirements.
Countering rumours that the government might not subscribe to the issue because of the tight fiscal situation, a senior finance ministry official told Business Standard the issue would definitely happen in 2011-12. However, the ministry would take a call on its size only after evaluating options.
The government had made a provision of Rs 6,000 crore for bank recapitalisation in its Budget for this year. The finance ministry can use this amount for subscribing to the rights issue, as well as for infusing capital into other public sector banks. It has the option of providing for more funds in the second supplementary demand for grants, to be tabled in the winter session of Parliament.
“Of this Rs 6,000 crore, we have to see how much can be given to SBI and how much is the demand of other banks. The situation would become clear by the end of the year. We will have to see whether more funds can be provided for in the second supplementary,” said another ministry official.
SBI had initially proposed Rs 20,000 crore of rights issue. However, bank chairman Pratip Chaudhuri recently said the size could be lowered and the government’s participation might also be less than its stake, as it could comfortably dilute its shareholding to 55 per cent from 59.4 per cent.
SBI is expecting the government’s contribution to be in the range of Rs 5,000 crore to Rs 9,000 crore in the rights issue, needed to increase its capital adequacy ratio (from 11.6 per cent at the end of June) and thus meet its expansion requirements for three years. If the issue size is cut to Rs 11,000 crore, the bank’s needs would be met for the next two years.
The SBI chairman had said the government was committed to a well-capitalised SBI.
The finance ministry official said since most other banks would not be in dire need of funds this year, the government could easily provide Rs 3,000-4,000 crore to SBI. However, in case of a larger fund requirement, the process could be completed in two or three phases.
The ministry will look at the 2010-11 balance sheet and growth outlook for 2011-12 of SBI and other state-run banks, for deciding the government contribution. It is assessing whether putting in money in SBI would be prudent at this point or this should be utilised in some other area.
In 2010-11, the ministry had provided Rs 21,000 crore to public sector banks for raising government equity. The government is trying to restrict its fiscal deficit to 4.6 per cent of the gross domestic product in the current financial year, but a rising subsidy bill could spoil this aim.
“Last year, SBI recapitalisation approval was not given. We will see the risk-weighted asset situation this year, for a final conclusion on how much capital is required now,” said one official. He said providing money to SBI would not put any pressure on the expenditure front.
Last week, SBI had reported a 45.7 per cent fall in net profit in the first quarter of 2011-12, on account of higher investment depreciation and loan loss provisions.
The net profit was Rs 1,584 crore, against Rs 2,914 crore in the corresponding period of 2010-11.
