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SBI’s Rs. 16,000 cr. rights issue approved

NEW DELHI: The Centre has approved the Rs. 16,000-crore rights issue of State Bank of India (SBI) as also an investment of about Rs. 10,000 crore to maintain its equity stake at over 59 per cent in the country’s largest lender.

Briefing newspersons on the Cabinet decision, Finance Minister P. Chidambaram said: “We have decided to subscribe to the rights issue. We intend to issue bonds of Rs. 10,000 crore for the purpose.” Noting that the step would not entail any outgo from the Exchequer this fiscal, he said: “We are subscribing to the rights issue, but payment will be made on a deferred basis”.

Mr. Chidambaram pointed out that the bonds would be redeemed later through the proposed Securities Redemption Fund (SRF), which is to be funded through taxes and dividends received from SBI. The annual cost of servicing the bonds would work out to about Rs. 790 crore, Mr. Chidambaram said, while making it clear that the Government was required to put at least that amount in to the redemption fund.

The details of the offer would be decided by the SBI board, he said.

While SBI has been exploring various options to garner funds, it is only through a rights issue that the Government’s shareholding does not get diluted. Apparently, the Government disfavoured the idea of a follow-on public issue as its stake would have got diluted from the current over 59 per cent to 55 per cent, the minimum prescribed under the SBI Act.

Earlier this year, the Government purchased the Reserve Bank of India’s 59.7 per cent stake in SBI in a revenue-neutral operation.

According to estimates, SBI is required to raise nearly Rs. 89,600 crore over the next five years as the bank’s capitalisation would help it in becoming globally competitive.

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