SBI rights issue scrapes through

There seem to be some question marks regarding State Bank of India's Rs 16,736 crore rights issue with the country's largest bank still to declare that the issue has scraped through due to fears that there could be a marginal shortfall in the retail portion of the issue.

SATISFACTORY RESPONSE

State Bank of India stock closed today at Rs 1,592.20, very close to the rights issue price of Rs 1,590 per share

The stock price on the day of rights issue announcement "" January 15, 2008 "" was Rs 2,462.25 and has fallen 54.6 per cent since then

The government will infuse Rs 10,000 crore to keep its holding in the bank at 59.73 per cent

State Bank of India stock closed on Tuesday at Rs 1,592.20, very close to the rights issue price of Rs 1,590 per share. In fact, during trading on Tuesday, SBI shares touched a low of Rs 1,582.25 on the Bombay Stock Exchange.

The stock price on the day of rights issue announcement "" January 15, 2008 "" was Rs 2,462.25 and has fallen 54.6 per cent since then.

A senior SBI executive said the bank was expecting the issue to be fully subscribed. The retail response has been satisfactory so far, though the final numbers are still being collated.

"Going by the rights ratio (one equity share for five shares held), the total money to be raised from retail investors is Rs 1,032 crore and in the last three days close to Rs 700 crore have come in from retail. There could be marginal shortfall but the final numbers are still pouring in," the executive said.

Some of the institutional investors have already evinced interest in subscribing additional shares, which are more than their entitlement. A final decision on the issue will be taken later, an executive said. The government will infuse Rs 10,000 crore to keep its holding in the bank at 59.73 per cent.

The sharp drop in the price of banking stocks, particularly SBI, has raised questions over the response to Employee Stock Purchase scheme (ESPS), which opens on March 28.

Over 1,80,000 employees of SBI are entitled to purchase shares under the scheme. The entitlement varies from 20 shares to 1,000 shares based on seniority in the organisation.

Most employees look at this investment from a long-term perspective and have availed loans from the bank to purchase shares. Yet, like prudent investors some of them may take a call based on how the stock behaves between now and the purchase period, an SBI executive said.

The bank is raising capital to comply with an additional capital requirement under Basel-II norms, which are guidelines to banks for measuring risk.

The funds are also being raised for additional provisioning required under the revised accounting norms for employees' retirement benefits known as accounting standard-15 .

The capital adequacy ratio (CAR) of the bank as on December 12, 2007 was 12.3 per cent of which, Tier-I capital adequacy stood at 7.5 per cent.

DSP Merrill Lynch, Kotak Mahindra Capital, Deutsche Bank, Citibank and CLSA Securities are merchant bankers to the rights issue.