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Rediff.com  » Business » SBI rights issue could happen by Dec

SBI rights issue could happen by Dec

Source: PTI
March 16, 2010 17:19 IST
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Country's largest lender, State Bank of India, is likely to hit the market with its rights issue by the year-end to mop up around Rs 20,000-crore (Rs 200 billion), a senior bank official said.

This would enable the banking behemoth to fuel its business plans, particularly in the face of rising competition from its deep-pocketed rivals, both private and overseas.

"This (rights issue) could happen by November-December. We expect to raise around Rs 20,000-crore through this exercise," the official, who did not want to be named, said in Mumbai on Tuesday.

The banking major is likely to approach the government with its rights issue plan in the near future, the official said.

The government, which presently holds just above 59 per cent stake in SBI, had recently placed the SBI Amendment Act in Parliament.

The Bill allows SBI to dilute the state holding to 51 per cent and thus raise necessary equity capital as and when required.

Recently, SBI Chairman, O P Bhatt, had said that the bank would prefer a rights issue to dilution of government holding to raise funds, as it wished the Government to continue as the majority shareholder.

"I want the government to continue to be the major stake holder in SBI...If there is an opportunity to raise capital quickly and efficiently, we would like to do that (rights issue)," Bhatt had said.

Rights issue is a mode of capital raising, where the company issues shares to its existing shareholders.

According to Bhatt, SBI needs to raise around Rs 40,000-crore (Rs 400 billion) over the next five-years to support its business plans. Currently, SBI has a capital adequacy ratio of nearly 14 per cent.

The lender currently has a liquidity surplus of close to Rs 50,000-crore (Rs 500 billion), which came down from around Rs 75,000-crore (Rs 750 billion) in December last year.

Besides SBI, a host of other state-owned banks have also expressed their intention to raise capital by way of equity dilution or other routes.

These include Uco Bank, Vijaya Bank, Oriental Bank of Commerce and Canara Bank.

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