State Bank of India is hopeful the government would approve its proposed rights issue of equity shares, aimed to raise Rs 20,000 crore to support its growth plan.
Speaking to Business Standard, managing director and chief financial officer Diwakar Gupta said, “Our capital adequacy ratio has fallen and we also need capital to support our growth plans. We are hopeful the rights issue will happen at the end of the third quarter or in the beginning of the fourth quarter of the financial year. The government has supported other public sector banks with capital and we don't have a formal communication that the government that it will not subscribe to the rights issue in the current year.”
The government owns 59 per cent stake and has to infuse nearly Rs 12,000 to retain proportionate shareholding. SBI's tier-I capital has fallen below eight per cent, as it has to made provision from its capital reserves towards staff pension. Though the regulatory requirement on tier-I capital is a six per cent floor, the government insists public sector banks have at least eight per cent.
If the rights issue does not happen, the bank has a back-up plan, since it has head room to raise funds through perpetual bonds and tier-II bonds. “There is a Plan-B, too. We grew by Rs 130,000 crore (credit) last year. This year, if we grow 18 per cent, which is our revised guidance, this will translate to Rs 140,000 crore. For this growth, we need Rs 17,000 crore of capital. If internal accruals can generate Rs 10,000 crore, then we need another Rs 7,000 crore,” Gupta said.
The bank has head room to raise Rs 6,000 crore tier-I capital, while it can raise up to Rs 15,000 crore through tier-II bonds. “So, we do not have an issue of capital support this year, but at the same time that will be very much on the edge,” he said. He however, ruled out raising funds through qualified institutional investors, as the bank was not keen on diluting government holding.
MARGINS
The bank is projecting 3.5 per cent net interest margin for the current financial year and one strategy will be to focus on term lending, which usually have a higher yield.
“We will try to do some more long-term funding. Also, we will try to avoid the rat race for extending short-term credit, which happens at the base rate,” he said.
The high cost deposits the bank raised in 2008, which had a nearly three-year tenure, would mature during the July-February period. About Rs 70,000 crore worth of high cost retail deposit will come up for renewal in the next eight months.
CREDIT GROWTH
Bank chairman Pratip Chaudhuri recently said SBI had scaled down its yearly credit growth target to 16-19 per cent, as compared to more than 20 per cent projected earlier. Gupta says the decision was taken to avoid worsening of credit quality.
“We wanted to send the message that we are not compromising on asset quality for the sake of growth,” he said.
Since the change of guard and top-level changes in the bank in April, the bank has increased focus on improving asset quality. To improve monitoring, it has appointed a deputy managing director-rank officer to handle stressed asset management.
“Our net NPA (ratio of non-performing assets to the total) was 1.65 per cent (March end). Depending on how well we execute our plans, it can go down to 1.3-1.6 per cent. We are projecting a large band, as there are uncertainties on how economy performs. But it will be definitely below 1.6 per cent,” he said.
