The Hindu Business Line : SBI has strong case for rights issue, says Chidambaram

Mumbai, Nov. 14 The State Bank of India’s long awaited ‘rights issue’ of shares to raise additional capital would appear to have received official blessings with the Finance Minister, Mr P. Chidambaram, strongly endorsing the bank’s proposal. The Minister said here on Wednesday that the SBI Board has presented a “strong case for a rights issue”.

The bank’s board is understood to have made a presentation to the Minister in Mumbai on its capital requirements.

“SBI has shown a strong need for raising capital and they have presented a case for a rights issue,” said Mr Chidambaram speaking to reporters after the board meeting. He did not mention anything about the size of the issue or the price at which these would be offered to the existing shareholders. He, however, said the final decision will be taken later in Delhi.

The Government had acquired the 59.73 per cent stake of the bank from the Reserve Bank of India at Rs 35,531 crore in June this year. The Government’s current holding in the bank, therefore, stands at 59.73 per cent.

Earlier, the Chairman of the bank, Mr O.P. Bhatt, said that the bank would look at raising Rs 10,000 crore by December this year either through a follow-on public issue or a rights issue. “We are considering various options for raising funds, but we are yet to decide,” said Mr Bhatt.

He added that although the bank planned to raise capital by December, the fund-raising exercise could spill over to next year. A senior official of the bank said, “We have an immediate requirement of Tier-I capital of Rs 10,000 crore in order to make ourselves Basel II compliant by March 31, 2008.” He also said that the bank has a long-term capital need in order to fund its growth. The bank’s Capital Adequacy Ratio was 12.85 per cent (12.63 per cent) as on September 30.

Share price impact

The share prices of the bank fared poorly compared to its counterparts, with the scrip closing just 2.20 per cent higher at Rs 2,346.15 against index (BSE Bankex) value of 11225.82, up by 6.53 per cent from its previous close.

“Today, there was heavy buying on anticipation of the Government clearing the SBI rights issue. The entire banking will see a short-term boom, if that were to happen. Going forward, the Bankex, led by SBI along with the power sector, will lead the rally on the BSE,” said Mr Vishwas Agarwal, independent technical analyst.

The Government’s nod for the rights issue may come as a relief to many public sector banks where the Government holding is at 51 per cent. A decision on SBI’s ‘rights issue’ could pave the way for other banks to propose similar capital mobilisation plans. A banking analyst with a leading broking firm said that the Government’s stake of 51 per cent in public sector banks is unlikely to come down in the near future. Under such circumstances, the rights issue could be a good option for banks. The Government is committed to keeping the public ownership in these banks at 51 per cent, in line with the Common Minimum Programme of the ruling UPA alliance.

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