The finance ministry is not in favour of State Bank of India's proposal for additional funding from the government.
Sources close to the development said the finance ministry was yet to receive a formal proposal to this effect from the bank, though SBI chairman OP Bhatt had recently said the lender had sought government permission to raise Rs 20,000 crore (Rs 200 billion) Tier I capital - or the bank's core equity capital - in the current financial year, preferably through a rights issue. The rights issue would entail a contribution of Rs 12,000 crore from the government.
Instead, the sources said the finance ministry thinks the bank should wait for amendments to the SBI Act, which, among other things, proposes to reduce the lower limit on government holding from 55 to 51 per cent. Once the amendment is through, SBI, in which the government holds 59.41 per cent, will be able to raise capital through a follow-on public issue, the sources said.
According to the bank's assessment, to meet its growth targets, SBI, the country's largest bank, needs Rs 60,000-70,000 crore (Rs 600 to 700 billion) over five years, of which around 10 per cent would come from internal accruals. The bank is looking to grow its asset book by around 25 per cent, after a 30 per cent increase in the last financial year.
Even with the present level of Tier I capital, SBI had room to raise over Rs 25,000 crore (Rs 250 billion) Tier II, or secondary, capital. This would help the bank meet its immediate capital requirements. The government will need to re-introduce the State Bank of India (Amendment) Bill in Parliament and push for its early passage to ensure the lender's growth ambition are not constrained for want of capital, the sources said.
Also, with the fiscal deficit budgeted at 5.5 per cent of Gross Domestic Product, the government's financial position does not permit it to provide significant assistance.
In 2007-08, SBI raised Rs 16,376 crore (Rs 163.76 billion) through a rights issue in March 2008, in which the government contributed over Rs 10,000 crore (Rs 100 billion) to subscribe to its share. It has already provided over Rs 3,800 crore (Rs 38 billion) to Punjab & Sind Bank, Vijaya Bank, Central Bank of India and Uco Bank as part of a plan to spend Rs 20,000 crore (Rs 200 billion) on recapitalisation of public sector banks. The move is aimed at bolstering these banks' capital adequacy ratio, to enable them to lend more.
The government is depending on World Bank loans to provide the remaining Rs 16,000 crore (Rs 160 billion) to over a dozen banks to ensure their capital adequacy ratio stays over 12 per cent, against the regulatory prescription of 9 per cent.
Once the recapitalisation process is over, the government would have provided Rs 30,000 crore (Rs 300 billion) to public sector banks, including the Rs 10,000 crore (Rs 100 billion) given to SBI earlier, against Rs 20,446 crore (Rs 204.46 billion) provided to them between 1985-86 and 2000-01.
