The country’s largest public sector lender, State Bank of India, on Saturday said it expects government approval for the Rs 20,000 crore rights issue proposal in the next two months.

“I would say that with the department (of financial services) we are in final stages of discussion (on Rs 20,000 crore rights issue) and I am hopeful it would go through,” SBI Chairman O.P. Bhatt said.

“I have been saying (the rights issue to hit the market) in this financial year. So, the decision (by the government) would be taken in the calendar year. The actual issue could take place before the end of financial year (2010-11).”

The fund raised would enable the banking behemoth to fuel its business plans, particularly in the face of rising competition from private and overseas rivals with deep pockets.

SBI had last raised Rs 16,736 crore through a rights issue in 2008, which saw its capital adequacy ratio rising above 14 per cent.

Earlier during the week, Financial Services Secretary R. Gopalan had said, “We have discussed it with SBI. We are still examining it...The ministry has asked it for some details, for some numbers.”

The Finance Ministry is looking into the proposal of SBI for rights issue and would take a view on the quantum after going through all the details, Mr. Gopalan had said.

As far as government holding in SBI is concerned, it holds 59.41 per cent stake in the bank, after acquiring RBI’s stake in 2007. A rights issue will not normally lead to a dilution of government equity in SBI. The government’s equity will only be reduced if it decides not to participate in the rights issue or does not fully subscribe to its quota.

Besides, the Parliament passed a Bill allowing the government to reduce its stake in SBI to the bare minimum of 51 per cent recently. The stipulation so far has been that the government can dilute its stake up to 55 per cent.

However, Finance Minister Pranab Mukherjee had indicated that dilution of the government’s stake would not be rushed, even though both Houses of Parliament have passed the Bill.

“It is just an enabling provision and it does not mean that tomorrow it is going to be implemented,” he had said in Parliament.

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