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SBI to raise Rs 20,000 crore through biggest rights issue

Thursday, April 16, 2009 In what could be the country's biggest rights issue, State Bank of India has approached the government for permission to raise Rs 20,000 crore during the current financial year to finance its expansion. SBI Chairman O P Bhatt told reporters today that the proposal to raise Tier-I capital was in view of the estimated fund requirement of Rs 60,000 crore to Rs 70,000 crore over the next five years. Of this Rs 5,000 crore to Rs 6,000 crore are expected to come from internal accruals every year. SBI had raised Rs 16,376 crore through a rights issue in March 2008, in which the government had contributed over Rs 10,000 crore to subscribe to its share. So far, this is the biggest rights issue by any corporate entity in India. A Bill to amend the SBI Act, pending in Parliament, proposes to lower the floor on government shareholding in the country's largest bank to 51 per cent from 55 per cent. Once Parliament approves the Bill, SBI will have more headroom to raise capital through issue of equity shares. Bhatt said that SBI would prefer a rights issue, where the government makes its contribution in cash instead of bonds, as it did last time. The option for shareholders was to subscribe to preference, or non-voting, shares. The SBI chairman said the bank would prefer to raise additional Tier I capital during the current financial year, though the timing would depend on the market conditions. A Rs 20,000 crore rights issue would mean that the government has to chip in with nearly Rs 12,000 crore. This would be in addition to the Rs 20,000 crore funding plan for other public sector banks to help them bolster their capital adequacy ratio. With the law restricting the government's ability to reduce its stake in public sector banks to less than 51 per cent, the Centre has initiated talks with the World Bank to help infuse capital in the other public sector banks. During the last financial year, the bank's loan book is estimated to have grown by over 25 per cent, while deposits rose by over 30 per cent. Bhatt said SBI hoped to grow its loan portfolio by over 25 per cent this financial year. Maintaining a cautious approach to sectors such as real estate, the bank will retain its thrust on retail and small and medium enterprises. Business Standard