Money Will Help Raise Capital Adequacy

We do not need additional funds for our international operations at this juncture. The issue proceeds will also be used to finance our domestic commitments, SBI sources said. The largest financial intermediary in the country which had recorded a net decline in credit offtake in the first four months of the new fiscal has been able to reverse the trend in August when its advance portfolio looked up by Rs 300 crore.

We are confident that credit will pick up in the busy season, the SBI executive said.

A government press release had earlier stated at the time of clearing the GDR issue that the proceeds of the GDR will be utilised to enhance the bank's exposure to project and infrastructure finance.

 

The GDR issue will also help SBI to boost its capital adequacy ratio which stood at 11.6 per cent in March 1996. The proceeds will add to the tier one capital and with the rise in capital adequacy ratio, the bank will be in a better position to expand its risk-weighted assets, one leading analyst said. Pre-issue, the paid up capital of the bank was Rs 474 crore.

The boost in the tier one capital will enable SBI to pump in funds into its subsidiaries. Last year, it had pumped in over Rs 250 crore into the equity base of its associate banks to help them achieve the Reserve Bank of India-stipulated eight per cent capital adequacy ratio. Besides, the associate banks also floated subordinated debts to boost their tier two capital.

With an expanded capital base, post-issue SBI will be able to infuse funds into its new subsidiaries on credit card and stock broking to be floated later this year. Besides the associate banks, it also plans to boost the capital base of its unique one-branch bank, SBI Commercial & International Bank Ltd (SBICI) and reposition as a new private bank. The plan is to pump in Rs 50 crore into SBICI's equity which is currently pegged at Rs 50 crore. With a Rs 100 crore capital base, SBICI will be able to float new branches in metros to put up a fight against the new private banks, sources in SBI said.

Forex market dealers are anticipating a slight hardening of rupee with the inflow of dollars following the SBI GDR issue. It will also act as a shot in the arm for the country's forex reserves with a $14.5 billion repayment schedule just around the corner. The $2.2 billion worth of Indian Development Bonds will mature in two tranches in January and February next year while the forex liability on account of the FCNR(A) maturity is to the tune of $3.5 billion.

In the first half of the current fiscal SBI has recorded a net decline in its non-food credit offtake. The deposit mobilisation is also lower than the industry average. Despite that, the interest income of the bank is likely to go up since the weekly average level of advances in 1996-97 is higher than that of 1995-96.

The average yield on advances last year was 12.17 per cent. Despite a 100 basis points cut in the SBI advance rate, the yield is unlikely to decline since the PLR is applicable to a handful of prime corporates. In contrast, the average cost of deposits which stood at 7.3 per cent in March is likely to go down as SBI has been able to offload 50 per cent of the high-cost certificate of deposits. It has also cut the cost of deposits by reducing the interest on term deposits by 100 basis points at two maturity slabs. The GDR proceeds will strengthen the bottomline of the bank in 1996-97, said a leading market analyst. In 1995-96, the bank posted a net profit of Rs 831.60 crore, registering a 16.2 per cent increase over the previous year's profit of Rs 715.50 crore.