SBI rights issue in jeopardy, may tap institutions

Written by fe Bureau | Mumbai/New Delhi | Updated: Jun 30 2011, 05:50am hrs
State Bank of India (SBI) may decide to raise money from institutional investors this year as its plan to raise R20,000 crore through a rights issue is unlikely to be cleared by the government. The Centre, which has already provided R37,000 crore more as tax cutbacks for the petroleum sector, is in no position to subscribe to the SBI rights issue, a finance ministry official said.

Agencies quoting a senior State Bank official said the government has informed the bank that the approval will not come through this financial year. The government is the largest shareholder in SBI, the countrys largest bank. As such, the plan to hit the market through a qualified institutional placement (QIP), which is still on the drawing board, could be more in the nature of a Plan B.

Speaking to FE, SBIs chief financial officer Diwakar Gupta maintained the bank would raise money through a rights issue. We are firm on our stand that we will be going for a rights issue to raise R20,000 crore. However, we are yet to hear anything from the government, which is considering the proposal.

Gupta said SBI would need to inform stock exchanges if it intended to raise funds through a QIP or other instruments. As of now, SBI has no such plans, the CFO observed.

The banks Tier-I capital has dipped to 7.77% after it provided an amount of R7,930 crore from its reserves to fund pension liabilities during the quarter ended March. There is an urgent need for the bank to raise capital.

Since a Bill last year allowed the government to reduce its minimum mandatory stake in SBI to 51% from the earlier 55%, the lender has more flexibility to raise funds. The government will need to invest approximately R11,500 crore if it wants to maintain its shareholding at the current level of 59.4%.

Meanwhile, the SBI share has gained close to 11% in the past four trading sessions though the stock is still about 20% below its April 2011 level of R2,934.

The bank reported a profit of just R20 crore in the three months to March 2011 as it recognised R2,500 crore in pensions through the profit and loss account and provided more for delinquencies.

Slippages at R5,600 crore were significantly higher than market expectations. At the current market price of Rs 2,380.50, a 1% stake in SBI is worth about R1,500 crore. As per RBI regulations, banks need to maintain Tier 1 capital of 6% and a capital adequacy ratio of 9%. However, the central bank wants all public sector banks to have a minimum CAR ratio of 12%.