The Hindu : Business : ‘PSBs handicapped by curbs on equity’

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Friday, Aug 03, 2007
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‘PSBs handicapped by curbs on equity’

They suffer from raising capital: SBI chief

SBI shortlists three for insurance venture
To form holding company for SBI Life and SBI Mutual

KOLKATA: State Bank of India Chairman and Managing Director O. P. Bhatt on Thursday regretted that public sector banks (PSBs) were restricted from raising capital which was hindering them from advancing lendable resources.

He said there was restriction on banks that the government holding in PSBs should not go down below 51 per cent.

Speaking at the Banking Conclave 2007, organised by the Federation of Indian Chambers of Commerce and Industry (Eastern Region) here, Mr. Bhatt said 78 per cent of the Indian banking industry was PSBs.

Mr. Bhatt said the Indian banking system was not in a position to finance the entire amount needed for the development of the infrastructure sector, which was put at $300-400 billion.

He said there was a possibility that the country’s booming economy might falter due to inadequate growth in the infrastructure sector. The issue of restrictions of government holding in PSBs would have to be debated, adding that there was scope to do away with it, he added.

“This has to be made to happen, and there is a potential to make it happen,” he said. Mr. Bhatt said for SBI, the bank had the option to dilute up to 55 per cent of the equity from the present government holding of 59 per cent. Under the current valuation, the bank could raise up to Rs. 5,000 crore by diluting four per cent of the equity, he added. In spite of capital raising restrictions, SBI was the largest lender to the infrastructure sector.

During the current financial year, the asset base of the bank was projected to be in the region of Rs. 80,000 crore to Rs. 100,000 crore.

Mr. Bhatt said banks would have to deal with risk mitigating issues, particularly in new businesses. Banks did not know how to finance knowledge-based industries as they lacked expertise. SBI was focusing on financial inclusion by reaching out to distant villages, he added.

Mr. Bhatt said the bank had shortlisted three foreign partners for its proposed foray into the general insurance venture. He said SBI would form a holding company for SBI Life and SBI Mutual Fund shortly. Strategic investors might also be given a part of the stake in the holding company.

Giving the rationale for floating the holding company, Mr. Bhatt said it would be done to synergise operations and get a valuation. The holding company might get listed on the bourses at a later date, he said. SBI would create a separate company for management of pension funds, he said. On capital requirement, he said SBI would require Rs. 15,000 crore to sustain business. — PTI

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