SBI gets capital push from govt

The Centre has agreed to subscribe to the equity shares of State Bank of India (SBI), the country's largest bank, to help meet its capital requirements.

The way the government can infuse equity capital in SBI is either through a rights issue or preferential allotment.

"Yes, the government will infuse capital," Vinod Rai, secretary, financial sector, said on the sidelines of a micro-finance seminar here. The government has given SBI an in-principle approval for raising Rs 10,000 crore equity capital by January 2008.

The bank needs capital to meet its loan growth, comply with the revised (Basel-II) capital adequacy norms and conform to the accounting standard AS-15.

SBI will require about Rs 5,000 crore to meet the new capital regulations from this year and another Rs 5,000 crore to provide for employee retirement benefits, as per AS-15. The bank has decided to provide for the benefits through a reduction in reserves against the other option of providing for it through profits and also do it in one go rather than provide for liability over five years.

SBI was earlier planning to raise Rs 13,000 crore to Rs 15,000 crore through fresh equity but subsequently decided to lower the requirement given a slower credit growth, SBI sources said.

The bank in recent years has been generating about Rs 3,000 crore of capital through retention of profits, which is expected to take care of capital needs from next year onwards.

The bank expects its annual net profit to cross Rs 10,000 crore in three years, of which about Rs 5,000 crore would be appropriated for boosting Tier-1 (core) capital.

"The credit growth has declined, but it was anticipated. Decline was not more than what we had anticipated. It was very much in the realm of what we had anticipated," Vinod Rai said.

Credit offtake in the public sector banks were expected to grow by 20-22 per cent in 2007-08, he added.