SBI open to FPO, private placements

The country’s largest lender, State Bank of India (SBI), on Thursday said it would examine options like private institutional placements and a follow-on public offer (FPO), if the government did not subscribe to its rights issue fully.

To fund growth, the bank plans to raise Rs 20,000 crore through a combination of rights issue and other instruments by March 2012. It expects a final decision on the matter by the second or the third quarter of this financial year, said Chairman Pratip Chaudhuri on the sidelines of the Federation of Indian Chambers of Commerce and Industry Banking Conclave on Thursday .

“We are in talks with the government for a rights issue of Rs 20,000 crore and the government seems supportive of it. If the government does not mind bringing its equity down to, say 55 per cent, we have options like combination of a rights issue, a follow-on public offer (FPO) or a private placement with institutional investors,” he said. The government’s stake in SBI stands at 59 per cent.

“The finance minister has personally been supportive of our rights issue proposal. In fact, he would be addressing the SBI board on August 6,” Chaudhuri said.

Higher provisioning had dragged SBI's net profit for the quarter ended March 31 by 99 per cent to Rs 20.88 crore, 2011. The bank had to provide nearly Rs 8,000 crore from capital reserves towards provisioning for pension liabilities in the last quarter of the previous financial year, which resulted in a decline in the bank's Tier-I capital from nine per cent to 7.72 per cent. “We would raise the capital adequacy, partly through profits and partly through the proposed rights issue,” Chaudhuri said.

Profit subject to provisioning
The bank on Thursday said its first and second quarter profits would be subject to provisioning towards building the ‘countercyclical buffer’, stipulated by the Reserve Bank of India (RBI). However, it expects the impact to be offset by higher net interest margin (NIM). The bank would need to keep aside close to Rs 1,000 crore for the countercyclical buffer over the next two quarters. SBI also expects NIM to stand at 3.6 per cent in the last quarter, against the projected 3.5 per cent, said Chaudhuri.

The bank had created a countercyclical provisioning buffer of Rs 2,330 crore as of March 31, against the total requirement of Rs 3,430 crore. The shortfall is expected to be met by September.

RBI has asked banks to create special buffers for making specific provisions for bad loans during system-wide downturns.