Cabinet okays RBI stake sale in SBI

The Union Cabinet today approved the transfer of the Reserve Bank of India's holding in the country's largest lender, State Bank of India, to the government by June.

"The regulator should not be the owner of the bank," P Chidambram, Union finance minister, told reporters here today after the Cabinet meeting.

The estimated acquisition cost of RBI's 59.73 per cent stake is likely to be around Rs 40,000 crore and government will make the payment in cash as the commercial bank is a listed entity. As per the Securities and Exchange Board of India formula, the SBI share price is likely to be Rs 1,300.

"The market forces will determine the actual cost. The price of the SBI share at Rs 1,300 has been determined at today's market value," said Chidambram.

The move assumes significance as a Bill is likely to be approved in the forthcoming budget to amend SBI Act to reduce the minimum holding government or RBI should have from 55 per cent to 51 per cent.

The move is aimed at giving the bank more headroom to divest more equity to public to raise capital to fund growth. The follow-on public offer of SBI is likely to come after the majority share transfer to government.

The cabinet has also approved the transfer of ownership of RBI's shareholding in the unlisted National Bank of Agriculture and Rural Development (NABARD) and National Housing Bank (NHB) to the Centre by June 2008 at book value.

The transfer of shares will remove the conflict of interest in due discharge of its duties as the banking regulator having ownership in banks and financial institutions, and will enable RBI to focus on its regulatory and supervisory functions, according to the government.

"These will be net cashless transfers. I give money to the bank, and it will return the money back to the government," said Chidambram.