SBI scales down rights issue proposal

State Bank of India (SBI), the country’s largest lender, has scaled down the requirement of funds from the government for its proposed rights issue.

The government-owned bank, which had earlier requested for Rs 20,000 crore from the government, has now settled for Rs 5,000 crore-Rs 15,000 crore.

“We are working on the number and they (the government) are very supportive. It will be required for capital. A part of it would come from internal accruals. The details are being worked out,” said Chairman Pratip Chaudhuri. “The amount we have put on the table is between Rs 5,000 crore and 5,000 crore from the government,” he said.

Since the last financial year, the bank has been working towards getting its rights issue rolling, since it needs to ramp up its capital base to fuel growth. Chaudhuri, however, did not indicate any time frame by when the rights issue would happen.

SBI is looking for capital infusion from the government to support its growth, as its capital adequacy ratio has declined to 7.8 per cent. Importantly, the bank's Tier-I capital fell below eight per cent. Though regulatory requirement for Tier-I capital is six per cent, the government wants banks to maintain the capital at a minimum of eight per cent. SBI's capital fell primarily due to provisions of Rs 8,000 crore from its capital reserves towards pension liabilities.

SBI's request for lower capital follows the scaling down of the bank's growth projections. Compared to the 20-22 per cent loan growth for the current financial year, SBI is now looking at 16-19 per cent growth. The Reserve Bank of India had also lowered the banking sector's loan growth projection for 2011-12 to 18 per cent during the first quarterly review of the monetary policy in July, compared with 19 per cent during the annual policy review in May.

However, observers are unsure of whether the government would allow the issue this year, given the precarious position of government finances. The government owns a little over 59 per cent in SBI.