State Bank of India is expected to raise Rs 5,000 crore through a rights issue of shares by December, a move expected to shore up the bank’s Tier-1 capital to above 8% for the current financial year, Business Standard reported.
The government is likely to subscribe its share completely in cash. The company is expected to pump in around Rs 3,000 crore.
The move comes within a week after rating agency Moody’s Investor Service cut the country’s largest lender’s stand-alone rating, citing concern over capital and rapid deterioration in asset quality.
SBI chairman Pratip Chaudhuri, said, “We have submitted our requirement to the government. We would require around Rs 20,000-30,000 for the next three years, a part of which would come from internal accruals. The Rs 5,000 crore rights share issue would be the first tranche in the entire process.” “The government is ready, the issue is likely to get through by December,” he added and stated the government would subscribe to the shares by infusing cash.
SBI had requested for a rights issue of Rs 20,000 crore, for which the government has to infuse Rs 12,000 crore to maintain its shareholding. As on June 30, the bank had Tier-1 capital of 7.6%, higher than 6% mandated by the regulator. The government, however, insists public sector banks maintain minimum Tier-1 capital of 8%. Government holds a stake of 59.4% in SBI
To maintain this shareholding, it has to infuse Rs 3,000 crore. The government says it would maintain a minimum stake of 58% in state-run banks.
The bank has submitted a response to the government on the rating downgrade, and already started implementing measures to improve the bank’s efficiency.
Pratip Chaudhuri said, “Over the years, we have been slightly wasteful in using our capital. We are trying to find out ways on optimizing our capital resources, by cutting on wasteful usages across the board. We are also emphasizing on improving operational efficiency of the bank.”
The bank is also focusing on the export guarantee scheme and the credit guarantee scheme for micro and small enterprises, which would free up its capital, he opined.
While the bank export guarantee scheme would cover Rs 30,000 crore of outstanding loans, the bank plans to double the coverage under the CGTSME scheme. State Bank of India is the largest banking and financial services company by turnover and total assets with its headquarters in Mumbai.
