Govt to infuse Rs 4,500 cr in SBI by March-end

The government will infuse Rs 3,000-4,500 crore in the State Bank of India (SBI) by the March end to help the lender achieve 8% capital adequacy norm, a senior Finance Ministry official said.

"SBI will need something like Rs 12,000 crore (to achieve 8% capital adequacy). Internal accrual will be around Rs 7,500 to Rs 9,000 crore...So the gap (of Rs 3,000 crore-4,500 crore) will certainly have to be funded by us," Financial Services Secretary D K Mittal said today.

The process of capital infusion in SBI, he added, would be completed by December or maximum by March-end.

When asked whether the capital infusion would be through a rights issue, he said, "(SBI) may not be going for public issue or rights issue. This may not be the right time to raise money from the market".

The government, he added, "is looking at various options to capitalise SBI, which will be slightly innovative...Public sector banks would fully capitalised".

The government, which holds 59% stake in the bank, will have to pump in more capital to enable it to expand its business and maintain Tier-I (equity) capital at 8%.

Recently, Moody's had downgraded the credit rating of SBI citing inadequate capital and poor asset quality as reasons. Following the downgrade, major private sector lenders like ICICI Bank, HDFC Bank and Axis Bank now stands at a higher level.

Responding to questions on SBI's downgrade, Mittal said, "We are really concerned and pained at the way SBI has been downgraded. The SBI has been unnecessarily downgraded."

Tier I capital of the bank declined to 7.6% at the end of first quarter, against the minimum norm of 8%. Over all Capital Adequacy Ratio (which includes both Tier I and Tier II) of SBI stood at 11.6% as on June, 2011.

At the same time, SBI's non-performing assets (NPAs) reached three-year high of 3.52% of loans for the quarter ended June 30.

SBI had raised over Rs 16,000 crore through rights issue in 2008. The government's contribution was in the form of bonds to the bank instead of cash.

The SBI has already submitted a response to the government on the rating downgrade, and started implementing measures to improve the bank's efficiency.