SBI plans 10% stake sale in holding company

State Bank of India (SBI), the country's largest lender, plans to sell up to 10 per cent stake in its proposed holding company for its insurance and mutual fund businesses to institutional investors.

The bank's insurance and mutual fund businesses are valued around Rs 16,000-20,000 crore. At this valuation, the sale of a 10 per cent stake could fetch around Rs 2,000 crore.

SBI was considering selling stake to as many as four investors before listing it, said O P Bhatt, chairman of the bank. SBI is following ICICI Bank, the second largest lender, for setting up a holding company as the life insurance business needs large capital and it will be a drag on the bank.

The bank itself will require huge capital to meet improved capital adequacy norms under Basel II, apart from funding its growth.

The bank's capital needs are expected to be huge as it plans to grow at a faster pace in an attempt to get back market share lost over the past decade.

The bank is likely to set up the holding company in the next two-three months and list it in the current financial year.

ICICI Bank's plan to sell 24 per cent stake in ICICI Financial Services, its holding company for insurance and mutual fund businesses, to foreign investors is stuck with the Foreign Investment Promotion Board (FIPB).

FIPB had first rejected the bank's application on the grounds that the regulations of the Insurance Regulatory and Development Authority (Irda) do not permit a subsidiary to own an insurance company. But ICICI Bank submitted a fresh application backed by a letter by Irda that it was fine with such a holding structure.

The bank also certified that it would remain the promoter of its life and non-life insurance businesses for all purposes.

ICICI Bank had received commitments from five investors to buy a combined 5.9 per cent stake in the holding company for Rs 2,650 crore. At this price, the valuation of ICICI Bank's insurance and mutual fund businesses comes to Rs 44,600 crore.

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