State Bank of India is racing ahead to retain its position as the premier commercial bank in the country. It is doing everything from redesigning its braches to retraining the entire workforce to setting up new business units apart from planning equity and debt issues. The bank will now be raising more capital and also attempt to capture affluent and young customers who have moved away from the public sector behemoth.
State Bank of India needs to raise Rs 50,000 crore in the next three years to meet its capital requirements as it anticipates a growth rate of 25 per cent. This year itself, the bank needs Rs 15,000 crore. After having raised Rs 5,000 crore already, State Bank of India is planning a follow-on public offer by December to raise approximately Rs 6,000 cr.
“We are waiting for the State Bank of India Act to be amended and then we will be able to issue preference shares,” Om Prakash Bhatt, State Bank of India chairman, told reporters on Thursday. Further, if the government holding was brought down to 51 per cent from the current 59.73 per cent, it would further facilitate the bank’s equity issue options, Bhatt said.
State Bank of India is also looking at unlocking value in its subsidiaries and is planning to set up a non-banking finance company to which it will transfer its holdings in the life insurance and asset management subsidiaries. Once that is done up to 10 per cent of the shares in the holding company are likely to placed with two or three investors initially for the sake of price discovery. “The life insurance business has been valued at $7 billion,” said Bhatt.
The subsidiary banks of State Bank of India would need Rs 9,000 crore of capital by 2009, said Y Vijay Anand, deputy managing director, State Bank of India. Some of the subsidiary banks might look at initial public offerings and the option of merger would also be considered, he said. State Bank of Patiala, State Bank of Indore, State Bank of Saurashtra and State Bank of Hyderabad are the four unlisted associate banks of State Bank of India.
New business areas that the bank is planning to get into are general insurance, for which it is trying to rope in a partner, and financial planning and advisory services. State Bank of India is also gearing up to get into managing pension funds as and when the government allows it.
Commenting on the proposed equity issue, Rajesh Malhani, senior banking analyst with Prabhudas Lillladher, said the foreign institutional investment cap of 20 per cent in state-owned banks was a constraint. The economy and monetary conditions would have to remain good till December for the issue to get a good response, he added.
At the current market price Rs 1,470 the State Bank of India stock seems to be fully valued and any further upside to the price can only come from better performance.