SBI looks to list subsidiaries to raise capital

Might look at listing its subsidiaries in life insurance and cards segments

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State Bank of India (SBI) might not raise fresh capital to fund growth in the current financial year but to meet long-term capital requirements, the bank is looking at options such as listing of subsidiaries, leveraging real estate and government infusion of funds. This was revealed by Arundhati Bhattacharya, chairman, SBI.

The banking sector would need capital to the extent of Rs 4.6 lakh crore by 2019 to meet Basel III and IFRS (International Financial Reporting Standards) norms, she said.

“We are looking at options like listing some of our subsidiaries, leveraging various assets and fund infusion from government. Among the subsidiaries we are looking to list are the life insurance subsidiary (SBI Life Insurance Co) and the cards business (SBI Cards),” Bhattacharya added.

Basel III accords deals with global regulatory standard and aspects like  bank capital adequacy, stress testing and market liquidity risk.

SBI was expecting a credit and deposit growth by 14 per cent this financial year, said Bhattacharya.

“We are seeing a pick-up in credit in sectors like renewable energy, road infrastructure and mining. We expect a pick-up in other sectors like railways, defence, transmission and ports in the coming months,” she said.

Recently, there were reports that SBI has put on hold $1-1.5 billion overseas bond issue. However, according to Bhattacharya, the bank had no such plans.

On the seventh pay commission, Bhattacharya said she expected it to be credit positive for banks and might also result in higher demand for housing loans. The seventh pay commission has recommended 23.55 per cent increase in pay and allowances of central government employees.

Risk of shadow banking

The SBI chief cautioned that lack of regulations in the shadow banking sector might have a negative impact on banking. The shadow banking system refers to non-bank financial intermediaries.  

In view of the increasing stringent regulations in the banking sector and resultant tightening of underwriting standards, weaker units were left out of the formal banking system. As a result, the shadow banking system was getting prominence, but it was largely unregulated, she said.

“As the entities in the shadow banking sector start leveraging equity, there might be a crisis. It might be difficult to control it,” she said.

Seeks change in recruitment process

Public sector banks should be allowed to recruit from college campuses, said Bhattacharya.  At present, recruitments are done through Institute of Banking Personnel Selection.

“Human resource is a challenge for banks. Currently, public sector banks are not allowed to recruit from campuses. We have flagged the issue with the government, and a three-member committee is looking at it,” she said.

According to Bhattacharya, with four new foreign banks, two universal, 11 payments and 10 small finance banks expected to enter the banking sector, competition is expected to intensify.  SBI has entered into a partnership with SBI for foraying the payments bank segment.

“Whether payments banks will be viable solely on the basis of transaction is questionable. However, it is the first of its kind initiative. There could be a lot of opportunity in the segment,” she said.