Talking to reporters soon after launching the SBI Gold Deposit here onFriday, bank chairman G G Vaidya said that presently SBI's capital adequacywas at 12.5 per cent and hence the premier bank would have to raise funds tomaintain the CAR at well above the Reserve Bank stipulated level.

Vaidya said the method of raising funds from the capital market was yet tobe worked out. According to bank chairman, it could be either through publicissues, ADR/GDR or rights issues. The final view would be taken afterfinalisation of accounts for 1999-2000. The rights issue, however, woulddepend upon the willingness of the Reserve Bank to subscribe to the issue.

He further added that SBI would formally approach RBI next month toascertain the central bank's response to the public issue proposal.In case RBI, which holds 59.74 per cent stake in the bank did not favourenhancing its participation through the rights issue, the SBI would have togo in for a public issue. Vaidya added that the bank would approachgovernment for necessary approvals.

Justifying the urgency for a fresh infusion of funds, he said that expansionof equity base was necessary for maintaining the CAR at above 12 per cent inview the increase in business volume.

In case the RBI refused to subscribe the rights issues, the government wouldbe needing to amend the SBI Act to facilitate the public issue. As per theAct, the Reserve Bank is required to maintain its stake at 55 per cent inthe SBI. The fresh issue without RBI participation could bring down the RBIstake at 40 per cent and thus transform SBI into a private sector bank.Banking secretary Devi Dayal, it might be recalled, had indicated that thegovernment was prepared to amend the provisions of the SBI Act and a billmight be introduced in this regard in the Winter Session of Parliament.

Apart from RBI's mandatory stake of 55 per cent, the SBI Act also stipulatesa cap of 20 per cent on foreign equity. The SBI chairman had had favoured acap of 30 per cent instead of 20 per cent currently. The changes in the Actwould also be necessary for prompting the SBI to go in for ADR/GDR issue.Referring to other activities in the bank, Vaidya said if required the SBIwas also contemplating voluntary retirement scheme to the employees to cutthe staff cost and shed excess fat.

The bank, Vaidya said, would also be appointing global advisor for theproposed entry in the insurance sector. The government, it may be mentioned,has introduced the Insurance Regulatory and Development Authority (IRDA)bill in the Lok Sabha to pave the way for entry of private sector in theinsurance business.