This refers to “SBI slashes rights issue size to Rs 5,000 crore” (October 11) in which you have reported that the government has asked the State Bank of India’s (SBI’s) to reduce its original proposal for a Rs 20,000-crore rights issue. Interestingly, the reason for this reduction is not apprehensions about shareholders’ response. In fact, the banking regulator, the Reserve Bank of India (RBI), had cleared SBI’s proposal in principle, but the finance ministry identified the government’s inability to make a matching contribution. When the government’s present stake is 59.4 per cent, its share in the rights issue would have been around Rs 12,000 crore. The government is definitely not in a position to mobilise so much money. The case study of SBI’s rights issue brings out an important limitation in public sector banks’ capital structure.
The SBI management, for obvious reasons, cannot speak on this issue and so claims that this would be the “first tranche”, implying there would be subsequent rights issues over the next three years. It is doubtful whether the government will have the capacity within the next three years to make matching contributions. The only way out of this impasse is to amend the supporting legislation by capping the voting rights of other shareholders.
K V Rao, Bangalore
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