Govt to issue SBI non-SLR bonds

Faced with opposition from the Reserve Bank of India, the government today decided to subscribe to the State Bank of India's (SBI) rights offer by issue of special marketable government securities, instead of SLR marketable government securities.

In other words, government will subscribe to the rights issue through non-SLR bonds, which may get statutory liquidity ratio (SLR) bond status later.

SLR is the percentage of total deposits that banks have to invest in government securities. At present, the minimum SLR is 25 per cent. SLR status will enable SBI to sell them to investors like banks.

The Union Cabinet, which met here today, gave approval to modify its earlier decision to issue government securities that would qualify for SLR requirements.

However, the government will later speak to the central bank for allowing SLR status to the special marketable government securities.

The government, which holds 59.7 per cent stake in SBI, will be subscribing to equity shares worth Rs 9,995.99 crore. SBI expects to mobilise Rs 16,742 crore through the rights issue, which opened on February 18 and closes on March 18.

The change in the rights issue subscription plan came after RBI conveyed to the government that the proposed securities cannot be notified under 'approved securities' within the meaning of Section 5(a)(ii) of the Banking Regulation Act and given SLR status.

It suggested three options to subscribe to the rights issue: (a) by cash or (b) gold valued at a price not exceeding the current market price or (c) unencumbered investment in the instruments which will be referred to as 'SLR securities'.

Five kinds of securities have been listed under option c, which includes "any other instrument as notified in future by RBI for SLR status. The finance ministry will take up the matter with RBI and request it to notify the proposed securities (special marketable government securities) as SLR securities under "any other instrument".