SBI moots new plan for govt stake in banks

The government should consider having a "golden share" to retain control over the public sector banks, while allowing them to raise capital through a restructuring plan, State Bank of India Chairman O P Bhatt has said.

The public sector banks could lose out totally to foreign or private banks in meeting the fast-increasing capital needs of the corporate world, particularly for the mergers and acquisitions, unless the nationalised banks were equipped to augment their capital, Bhatt said, making a strong case for greater financial empowerment for nationalised banks to compete effectively.

"The question is if you look at it traditionally for increasing capital and if the government shareholding should not go below 51 per cent, then for each increase of capital, they (the government as owner) have to bring pro-rate share."

"So either they (the government) do that and if they cannot, then there could be some concept of golden shares or non-voting shares or some other capital structure plan where they would have ownership control," Bhatt said.

Asked about SBI's capital requirement and the mode through which he proposed to raise the same, Bhatt said, "It is difficult to say at this time.... It could be at least Rs 10,000 crore or Rs 20,000 crore if we can get it."

On whether the Bank would go for equity expansion or preferential share for raising the capital and what would be the time-frame, Bhatt said the government was actively considering the issue of raising capital and the decision would be taken soon.

"I know the government is applying itself to this issue for sometime. I have a feeling that the government would come out with a decision very soon."

Asked if dilution of equity to the extent where the government holding was above 51 per cent would be enough, Bhatt said even a per cent or two would mean lots of capital for the bank as "our market capitalisation is well above Rs 100,000 crore. The question is how much and how soon, so fear is not there".

On top of it, the bank could leverage from the increased capital, he said, adding that further funds could be raised from the tier-II capital (debt market)."

The merger of associate banks with it would further brighten the situation for SBI as it would help enhancing the prudential and exposure norms.

SBI not only needs the growth capital, but also funds for the implementation of Basel-II (international standardisation) norms that benchmark the quantum of capital that a bank required to put aside for covering the financial and operational risks, he said, adding that "the bank requires close to Rs 5,000 crore just for Basel-II".

As such, the Reserve Bank of India has asked all banks having overseas operations to be Basel-II-compliant by March 2008.

"We also need capital for complying with AS15 (accounting standard 15 norms relating to employees statutory dues). Banks like mine would require between Rs 4,000 crore and Rs 5,000 crore. These two alone make a requirement of Rs 10,000 crore," he said.

According to government estimates, SBI needs to raise around Rs 89,600 crore over the next five years and the bank is also likely to mop up about Rs 15,000 crore from a mix of tier-I and tier-II bonds.