SBI Act changes in next session

The government will push amendments to the State Bank of India Act, 1955, in the coming session of Parliament to enable the bank to split its shares, undertake preferential or private placement of shares and issue bonus and preference shares to meet future capital requirements.

The amendment Bill also proposes to prescribe a minimum government stake of 51 per cent in the bank as against 55 per cent now. In addition, the authorised capital is proposed to be raised from Rs 1,000 crore to Rs 5,000 crore. Further, the largest commercial bank will have four managing directors, instead of two at present, if the proposal being piloted by the finance ministry gets the parliamentary approval.

“The SBI Act amendment is being taken up in the coming session of Parliament next month,” a senior government official said.

According to finance ministry estimates, SBI will need Rs 1,93,172 crore by 2013 to meet its expansion needs and also help it support its subsidiaries. The government estimates that the bank may raise over Rs 25,000 crore through preference shares to maintain a capital adequacy ratio (CAR) of over 12 per cent by 2013.

The amendments will help SBI’s follow-on public offer because the law currently restricts significant capital-raising through this route as the government holds a 59.41 per cent stake in the bank. Expecting the passage of the Bill, the SBI management is planning a public offer in 2009. The bank had plans to go for a public offer in 2007-08, but deferred it as the Bill, which was introduced in December 2006, had not received Parliament’s nod.

The splitting of shares from Rs 10 to Rs 5 or Re 1 will increase the number of shares significantly and reduce the share price in the market, enabling more retail investors to buy its shares, officials said.

The SBI Act was last amended in 1993 to enable the bank to access the capital markets. While the SBI can issue equity shares or bonds, there is no express provision in the principal Act, which allows it to issue preference shares as well as bonus shares.

The SBI (Amendment) Bill, 2006, was introduced in the Lok Sabha on December 18, 2006, and subsequently sent for scrutiny of the Parliamentary Standing Committee on Finance. The parliamentary panel had approved the amendments with minor changes in August 2007.