State Bank of India to cut size of rights issue, new proposal expected soon

NEW DELHI: The country's largest bank, State Bank of India , will move a fresh proposal for its rights issue but of a smaller amount than Rs 20,000 crore proposed earlier, because of the government's fiscal constraints. The government holds 59% stake in the bank and will have to pick up corresponding amount in the offer if it does not want its stake to fall.

A financial ministry official said the government was ready to consider a smaller offer. SBI Chairman Pratip Chaudhuri on Friday said the bank has prepared a draft proposal on the rights issue and will submit it to the government within a month. He said the government would continue to hold 59% stake in the bank after the rights issue. This means the government will have to pick up its entire share of the rights issue.

ET had earlier reported that the government was not in favour of a right issue by SBI as it wanted to avoid any expenditure that is not absolutely necessary because of a much higher subsidy burden than initially budgeted and a possible drop in revenues. The ministry official said SBI may cut the size of the earlier proposed Rs 20,000-crore rights issue by half. "There are various options. We can also consider the issue in two tranches. Let the bank submit its proposal first," he added.

SBI, which is looking at credit growth of around 19% in 2011-12, also announced its plan to raise $5 billion through offshore loans by December. "We hope to raise $5 billion debt by December by means of foreign debt through mediumterm notes (MTN)," the bank's chairman said on the sidelines of a meeting between Finance Minister Pranab Mukherjee and chiefs of public sector banks here. Mr Chaudhuri said the debt would be raised during the second or the third quarter of this fiscal. "We will be raising the funds, but there has to be visibility of credit growth. If there is demand for assets, we will go and raise it," he said.

MTN is a kind of bond with a maturity period usually between 5 to 10 years. It is usually available on tap rather than issued all at once like other bonds. Mr Chaudhuri said the bank is confident of maintaining its net interest margin (NIM) at 3.5% this fiscal. In March 2011, the Parliament passed the SBI Amendment Bill, paving the way for the government to bring down its stake in the bank to 51% - a move that throws up other fund-raising options like a follow-on equity issue.

Source: EconomicTimes