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Friday, October 7, 2011

Capital infusion the only way forward for SBI

State Bank of India (SBI), the country's largest lender, is gearing up to improve efficiency and asset quality to make good its existing funds. It hopes the government would support it with at least half of the total amount budgeted for capital needs of all public sector banks this financial year.

The bank needs Rs 14,000-21,000 crore for the next five years and expects at least Rs 3,000 crore would be infused by the end of this financial year. "This year, anything between Rs 3000-Rs 10,000 crore would comfortable," said SBI chairman Pratip Chaudhuri. He has already given an analysis of the downgrade by ratings agency Moody's to the finance ministry.

On Tuesday, Moody's had downgraded the bank's financial strength rating from ‘C-’ to ‘D+’, citing lower capital adequacy ratio and the possibility of further deterioration in asset quality. The government holds a stake of 59.4 per cent in SBI.

Asked whether there were options in case capital infusion did not take place this year, Chaudhuri said, “There is no Plan B.” To sustain 15 per cent growth for three years and improve the capital adequacy ratio to nine per cent from the current 7.6 per cent, the bank needs Rs 10,000 crore from the government. "We have asked for different requirements under different scenarios from the government. The capital should come by the end of December, or if stretched further, by March 2012," he said.

The bank said the rating action would not have an immediate impact on the cost of borrowing, as the rating applies only to $625-million perpetual debt, raised in two tranches in 2007 for 10 years, and is no longer considered a part of core capital under Basel-III norms. Hence, the bank is unlikely to issue the instrument in the future.

The bank's debt rating stands unchanged at 'Baa2'. However, it is currently not looking at raising funds abroad. SBI can borrow up to $10 billion under the medium-term-note programme this financial year.

Chaudhuri said the export guarantee scheme and the credit guarantee scheme for micro and small enterprises (CGTSME) would help free the bank's capital. While the bank export guarantee scheme would cover Rs 30,000 crore of outstanding loans, the bank plans to double the coverage under CGTSME scheme.

On asset quality, Chaudhuri said in the pre-policy meeting yesterday, banks had requested the regulator to "take a pragmatic view on non-performing assets and restructuring" to avoid a sharp deterioration across the system. He added SBI would prefer to lend to high-rated clients, even if the returns were lower than other risky assets.

The bank's management, however, assured SBI would continue to report higher net interest margins (NIMs) each quarter. "We have aimed for NIMs of 3.5 per cent. We hope it would be better than that," said Chaudhuri.

Source: Business Standard


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