Govt against capital infusion in SBI

Wants to wait for amendments to the SBI Act for a follow-on public issue.

The finance ministry is not in favour of State Bank of India’s (SBI) proposal for additional funding from the government.

Sources close to the development said the finance ministry was yet to receive a formal proposal to this effect from the bank, though SBI Chairman OP Bhatt had recently said the lender had sought government permission to raise Rs 20,000 crore Tier I capital — or the bank’s core equity capital — in the current financial year, preferably through a rights issue. The rights issue would entail a contribution of Rs 12,000 crore from the government.

Instead, the sources said the finance ministry thinks the bank should wait for amendments to the SBI Act, which, among other things, proposes to reduce the lower limit on government holding from 55 to 51 per cent. Once the amendment is through, SBI, in which the government holds 59.41 per cent, will be able to raise capital through a follow-on public issue, the sources said.

According to the bank’s assessment, to meet its growth targets, SBI, the country’s largest bank, needs Rs 60,000-70,000 crore over five years, of which around 10 per cent would come from internal accruals. The bank is looking to grow its asset book by around 25 per cent, after a 30 per cent increase in the last financial year.

Even with the present level of Tier I capital, SBI had room to raise over Rs 25,000 crore Tier II, or secondary, capital. This would help the bank meet its immediate capital requirements. The government will need to re-introduce the State Bank of India (Amendment) Bill in Parliament and push for its early passage to ensure the lender’s growth ambition are not constrained for want of capital, the sources said.

Also, with the fiscal deficit budgeted at 5.5 per cent of Gross Domestic Product, the government's financial position does not permit it to provide significant assistance.

In 2007-08, SBI raised Rs 16,376 crore through a rights issue in March 2008, in which the government contributed over Rs 10,000 crore to subscribe to its share. It has already provided over Rs 3,800 crore to Punjab & Sind Bank, Vijaya Bank, Central Bank of India and Uco Bank as part of a plan to spend Rs 20,000 crore on recapitalisation of public sector banks. The move is aimed at bolstering these banks’ capital adequacy ratio, to enable them to lend more.

The government is depending on World Bank loans to provide the remaining Rs 16,000 crore to over a dozen banks to ensure their capital adequacy ratio stays over 12 per cent, against the regulatory prescription of 9 per cent.

Once the recapitalisation process is over, the government would have provided Rs 30,000 crore to public sector banks, including the Rs 10,000 crore given to SBI earlier, against Rs 20,446 crore provided to them between 1985-86 and 2000-01.

On Friday, SBI’s shares fell 3.09 per cent, to close at Rs 1,817.90 on the Bombay Stock Exchange.