In what could be a bonanza for its existing shareholders, State Bank of India (SBI), the country?s largest lender, is considering an issue of bonus shares.
Besides reducing government?s minimum stake to 51%, the SBI Amendment Bill, 2010, which has been passed by both houses of Parliament, enables SBI to issue bonus shares. Other public sector banks already enjoy this provision.
Since the government is the largest shareholder in SBI, holding just over 59% stake, it would be the biggest beneficiary of any bonus issue. A finance ministry official said that the government is keen on a bonus issue of shares from SBI.
?We will consider issuing bonus shares because there is a lot of demand for them, especially now that our stock price is approaching Rs 3,000. Till now we could not issue bonus shares, but the SBI Amendment Bill empowers us with this provision. So we will definitely examine it,? SBI chairman OP Bhatt told FE .
SBI shares rose almost 7% last Thursday after it reported a 25% jump in first quarter net profit at Rs 2914.2 crore, with 88 basis points quarter-on-quarter rise in its net interest margin. On Monday, its stock closed lower 1.02% at Rs 2,820.25 at the BSE.
SBI also plans to raise Rs 20,000 crore through a rights issue by the March-2011, and has already started discussions with the banking division in the ministry of finance. Bhatt met finance ministry officials on Thursday to discuss the bank?s capital raising plans. The bank will also need to alter its management structure as the fresh amendments propose abolishing the post of vice chairman and appointing two more managing directors.
?Currently, we do not have a vice-chairman. The government will appoint two extra managing directors,? Bhatt said. The amendments have been brought in place to bring the SBI Act of 1955 in consonance with other laws that were enacted later such as the Banking Companies (Acquisition and Transfer of Undertakings) Act,1980, as also the Companies Act, 1938, said R Gopalan, secretary, department of financial services.
Since the government can reduce its stake in other PSBs to 51%, it was logical to extend this provision to SBI as well, Gopalan said. The SBI Act was last amended in 1993 to enable it the bank to access capital market. While the SBI could access capital market by issuing equity shares or bonds, or both, there was no provision under the SBI Act to enable the SBI to issue preference shares and bonus shares.