SBI may shelve rights issue

Need for funds slows as credit offtake till mid-Sept crawls to just 9% of annual target.

The sustained slowing of credit growth has made State Bank of India (SBI), the country's largest lender, consider shelving its proposed rights issue of Rs 8,000-12,000 crore, sources in the bank told Business Standard.

The bank's credit portfolio has grown by just about Rs 9,000 crore in the first five and a half months of 2007-08 against the bank's target of increasing its advances by Rs 1,00,000 crore. 
   

SLOWING BANK CREDIT (In Rs crore)
GROWTH     (financial year so far)
As on Sept 14, 2007	54,908
As on Sept 14, 2006	1,01,142
GROWTH (year-on-year)
As on Sept 14, 2007	3,75,602
As on Sept 14, 2006	3,80,454

The entire banking industry is witnessing an unexpected continued slowing of credit disbursement, hit by a sharp rise of about 4 percentage points in interest rates during January-June 2007.

SBI was planning to boost its capital requirement to fund credit growth and also meet enhanced capital requirements as it has to implement the revised capital adequacy (Basel II) norms from this year.

The slowing of credit would free up a significant amount of capital and thus not require further raising equity capital.

The government had given its nod for the bank to go ahead with the rights issue. The government owns about 59.73 per cent in the bank.

SBI's credit growth has been in line with that of other banks. The banking industry is witnessing a slump in credit growth, though investments made by industry are on the rise. Year on year, bank credit has grown 23.4 per cent in 2007 as against 31 per cent last year.

On the other hand, investments made by industry grew 19.4 per cent as against 0.6 per cent last year. Banking operations for the quarter ended September 30,2006 have almost doubled for State Bank of India by around Rs 21,000 crore.

The rights issue would have allowed SBI to raise tier I capital without diluting the government stake.