SBI gets nod for Rs 10k cr equity | india | Hindustan Times
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SBI gets nod for Rs 10k cr equity

india Updated: Nov 30, 2007 22:32 IST

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The State Bank of India on Friday got a go ahead from the government to increase its equity by Rs 10,000 crore, a move that would help the leading lending institution meet its vast fund requirement.

The equity enhancements would be through a preferential share, Information and Broadcasting Minister PR Dasmunsi told reporters during a briefing about the decision taken by the Union Cabinet last night.

The shares of the bank, in which the government has 59.73 per cent stake, shot up at the Bombay Stock Exchange by over 2 per cent within minutes to cross Rs 2,322 a share. The details of the issue including the number of shares to be subscribed, the amount to be subscribed, coupon rate and tenure of the securities would be worked out by the government in consultation with the bank, in accordance with Sebi guidelines and market conditions, Dasmunsi said.

The country’s largest public sector bank hopes to raise at least Rs 18,000 crore before the end of the current fiscal.

On the impact of the move on fiscal deficit, government said, it would gain additional dividend and taxes amounting to about Rs 5,000 crore over a period of three years, apart from increasing the valuation of its stocks in the bank. However, it will have to spend about Rs 790 crore as interest to the bank on proposed securities in the first year itself.

The government’s decision is also expected to help SBI save the costs of raising capital as it would have been costlier to raise equity and to service it. Sources said rights issue would allow the bank to raise Tier-I capital without diluting the government's shareholding. It is understood that the ratio would be 60:40, where 60 per cent would be subscribed by the government.

SBI chairman OP Bhatt had earlier said the bank needs capital not only for growth but also for implementation of Basel-II norms, which benchmark the quantum of capital that a bank is required to put aside for covering the financial and operational risks.

According to government estimates, the SBI needs to raise around Rs 89,600 crore over the next five years. The bank's net profit rose 36.04 per cent to Rs 161.14 crore during Q2 this fiscal against Rs 118.44 crore in the corresponding period of 2006-07.