SBI wants to issue ADS, moves RBI

Backup: domestic equity issue.

The State Bank of India (SBI) is learnt to be planning an American depository shares (ADS) issue as part of its fund-raising programme in the next financial year.

According to banking sources, a proposal to this effect has been submitted to the Reserve Bank of India (RBI) and discussions have been held with the banking regulator.

The bank had also kept open the option of an equity issue in the domestic market in case the ADS issue did not work out, said sources.

When contacted SBI Chairman AK Purwar refused to comment.

The RBI, which holds a 59.73 per cent stake in the country's largest commercial bank, needs to bring down its holding in SBI to enable it to tap the global market.

The SBI Act stipulates that the RBI's holding in the bank cannot fall below 55 per cent. It is learnt the RBI is willing to cut its stake in SBI as part of its strategy to stay away from the operations of bodies regulated by it.

The SBI Act needs to be amended to bring down the central bank's stake in the bank.

However, this alone will not pave SBI's way for an ADS issue.

The government will also need to either raise the foreign stake in the bank from the current limit of 20 per cent or exclude ADS/GDRs from the foreign holding limit.

The bank's foreign holding has already touched 19.83 per cent, with foreign institutional investors (FIIs) holding 11.9 per cent and GDRs accounting for 7.93 per cent. Sources added the RBI had approved this proposal too.

The bank has been preparing for the generally accepted accounting principles of the US (US-GAAP) for the last two years.

For the year ended March 2005, the credit growth of the bank is likely to be 20 per cent.

With phenomenal credit growth, implementation of Basel II norms and overseas acquisitions in the pipeline, the bank plans to raise funds worth Rs 4,000 crore though debt as well as equity. If the amendments do not go through, it may follow the rights issue route to raise equity, sources said.

The bank's capital adequacy ratio is now about 12.2 per cent and may touch 12 per cent by March-end. SBI typically prefers to keep its capital adequacy ratio above 12 per cent.

While the RBI holds 59.73 per cent in SBI, mutual funds and UTI hold 4.94 per cent; banks, financial institutions, insurance companies, the Central government and state governments and non-government institutions hold 7.04 per cent, private corporate bodies 2.32 per cent, the public 6.45 per cent, non-resident Indians/overseas corporate bodies 0.05 per cent and others 7.88 per cent.

To market

SBI plans to raise fresh equity through an ADS issue, failing which it will float a domestic issue

What's holding it up?

The SBI Act requires that RBI holding in SBI cannot fall below 55%. It is now at 59.73%. So the Act will have to be amended

Foreign holdings in SBI, capped at 20%, is already at 19.83%. So the govt will either have to separate ADS/GDRs from the foreign holdings cap or hike the cap itself