Govt may mull SBI's rights issue in 4-5 days

The government is likely to decide on the Rs 20,000 crore rights issue proposal of State Bank of India (SBI) in the next 4-5 days.

"Various issues are being looked into. The Finance Ministry at the moment is doing number crunching," sources said.

The government is likely to decide about SBI's rights issue proposal in next 4-5 days, sources added.

SBI requested the government for Rs 20,000 crore rights issue last year. The amount would enable the banking behemoth to fuel its business plans, particularly in the face of rising competition from private and overseas rivals with deep pockets.

The government holds a 59.41 per cent stake in the bank, having acquiring RBI's stake in SBI in 2007.

A rights issue will normally not lead to a dilution of government equity in SBI. The government's equity will only be reduced if it decides not to participate in the rights issue or does not fully subscribe to its quota.

If a rights issue does not happen, the bank has the option to go for a preferential issue or follow-on public offer to raise capital.

Last year, the Parliament passed a Bill allowing the government to reduce its stake in the bank to 51 per cent, against the earlier minimum limit of 55 per cent.

To fund its business growth, SBI has already decided to raise Rs 12,000 crore through bonds by March 2012.

The executive committee of the central board of SBI has accorded approval for raising the capital for an aggregate amount of Rs 10,000 crore by way of the issue of Tier II bonds.

SBI had said that the fund would be raised during the remaining period of 2010-11 and 2011-12 in different tranches.

Besides, the bank also plans to raise Rs 2,000 crore from bonds offered to retail investors next month. The board has also given approval for raising Rs 1,000 crore with a green shoe option.

The first retail bond issue of Rs 1,000 crore by SBI was made in October 2010, which was subscribed over 17 times on the opening day itself. The bank had to curtail the subscription period as the response to the bonds was beyond anticipation.

The offering comprised issue of bonds worth Rs 500 crore, with an option to raise it further up to Rs 500 crore by issuing additional bonds.