State Bank of India (SBI) has informed the government about its need for capital and the lender will look to tap the equity market with a share issue in 2009-2010 (April-March), Chairman O P Bhatt said.
SBI has had discussions with the finance ministry on the issue, but is yet to sent a concrete proposal. “We have a Bill pending in the Parliament... where our government shareholding is mandated by the Act at 55 per cent. We have suggested it to be reduced to 51 per cent in the bill,” Bhatt said. Government holding in the bank is at 59 per cent now and if the act is amended, then the country’s largest bank will have room to reduce government holding to 51 per cent.
“At the present valuation, we won’t get much. But once the market improves, and if our government shareholding can go down to 51 per cent, then we can... next year,” Bhatt said.
SBI’s capital adequacy ratio (CAR) fell below 12 per cent to 11.51 per cent at the end of September. The government has suggested it wants big banks to have 12 per cent CAR. However, retained earnings and the recent reduction in risk weights by the Reserve Bank of India (RBI) will help in releasing some capital, following which SBI’s CAR will rise above 12 per cent end-December, Bhatt said.
On November 15, RBI lowered the risk-weight prescribed for bank loans to the real-estate sector to 100 per cent from 150 per cent. It cut provisioning requirements for all types of standard assets to 0.40 per cent.
The central bank had also said all unrated claims on corporates will have a risk weight of 100 per cent as against 150 per cent earlier. “RBI’s risk weight cuts will release 70 bps (basis points) of capital,” Bhatt said.
SBI had raised about Rs 17,000 crore in March through a rights issue of shares. The government subscribed to the shares by issuing bonds to the bank, instead of paying cash.
SBI’s fully subscribed rights issue was priced at Rs 1,590 a share. “This was first-of-its-kind as earlier government used to infuse money into banks for recapitalisation. But the government gave the capital to SBI because it bought our growth story. Other banks also had applied for capital, but SBI was the first to get the capital from the government,” Bhatt said.
However, if the amendment to the Bill is not passed by Parliament, then it makes no sense to dilute just around 4 per cent of government stake as “it wont’ be much cost effective,” Bhatt said.
