A rights issue is a capital raising instrument in which shareholders are offered additional shares at a discount to the market price, without diluting the promoter’s holding in the company.
“Out of the proposed issue size of Rs 20,000 crore, government’s share would be Rs 12,000 crore. Currently, we are in talks with the government to get their share of the contribution. We have a very supportive stand from them,” SBI Chairman Pratip Chaudhuri said on the sidelines of a function organised by the State Bank of Mysore. He said the government would maintain the public sector nature of all nationalised banks. Currently, the government’s holding in SBI stands at 59 per cent. SBI’s proposed rights issue is expected to augment the bank’s lending operations by boosting its capital adequacy ratio.
On the merger of subsidiary banks, Chaudhuri said, “We had merged State Bank of Indore in 2010. It takes a minimum of two years to absorb a bank into the system. So, we would take a view on further mergers after 2012.”
Chaudhuri said financial reporting standards of banks were in compliance with Reserve Bank of India (RBI) guidelines. “Financial reporting standards prescribed by RBI are in compliance with old-world standards. All banks have recruited chartered accountant firms to comply with the reporting standards. I don’t think there is anything lacking in the reporting standards of banks,” he said.
RBI Deputy Governor K C Chakrabarty had, earlier this week, taken a dig at financial reporting standards of Indian banks after some banks saw their profits decline following a change in leadership. SBI, under new chairman Pratip Chaudhuri, had reported its lowest fourth quarter profit in a decade. The drop in profit was primarily attributed to high provisioning. SBI’s total provisions rose 82.1 per cent to Rs 6,059 crore, while provisioning for bad loans rose to Rs 3,264 crore during the fourth quarter of the last financial year.
The bank is, however, hopeful of recording good numbers in the first quarter of the current financial year. “We were slightly taken by surprise at the provisioning for pension in the fourth quarter. Now, provisioning has been carried out, and initial indications show earnings would be better in the first quarter,” Chaudhuri said. He added the bank’s net interest margin would be better, despite a rise in deposit rates, since the bank had recently raised its base rate. In May, the bank has increased its base rate by 75 basis points to 9.25 per cent after the policy rate increase by the central bank.
“We expect credit growth rate to be 16-19 per cent in the current financial year in rupee denomination. We are also seeing a strong demand for foreign currency loans,” he said. He ,however, added with rising interest rates, companies may opt for external commercial borrowings to raise money, and this would hurt credit growth.
SBI is also likely to raise funds through medium-term notes (MTN) in the second quarter. “We had a $5-billion MTN programme, which was raised to $10 billion. We will hit the market when there is a visibility of assets. Hopefully, we should do it in the second quarter of the current financial year,” he said. He added the bank would open a wholly-owned subsidiary in Australia next year with an investment of $75. The bank would also open branches in London and Singapore.