The Central Government is likely to announce a rights issue instead of a preferential allotment to support the capital adequacy of State Bank of India.
“The government is very keen to give an opportunity to minority shareholders,” said Pratip Chaudhuri, Chairman, State Bank of India, in an exclusive interview with The Hindu . Last year, the government had infused Rs.7,800 crore as capital by way of a preferential allotment.
“But this time in the meeting with the Finance Minister what was talked about is if you give a preferential allotment then the government’s holding goes up and minority shareholders do not get an opportunity to participate. So the preferred route is a right issue, in which the government as also the minority shareholders should have an opportunity to participate,” said Mr. Chaudhuri.
Another senior SBI official said this week that the government had agreed to inject Rs.4,000 crore to help the capital adequacy of the bank. The present norms mandate banks to keep their capital adequacy ratio at 9 per cent. Tier-I capital of a bank consists mainly of share capital and disclosed reserves and it is a bank’s highest quality capital because it is fully available to cover losses.
In the case of SBI, “if the government puts in Rs.4,000 crore and given the 62:38 holding between the government and non-government we can get another Rs.2,500 crore from the minority shareholders. In that case, the full amount coming as capital would be much larger. But discussions are going on and I think this week itself the exact process would be finalised,” Mr. Chaudhuri added.
The Union Budget for the current fiscal has earmarked around Rs.15,800 crore for shoring up the core capital base of state-run banks. Rights issue considered is a fair way of offering capital.
However, the bank is planning to raise funds from internal surplus also. “It is not an infusion of Rs.4,000 crore alone. If you take minority shareholders’ Rs.2,500 crore, it will be Rs.6,500 crore. Already we have a capital adequacy of 9.71 per cent. Last year, we made a profit of about Rs.11,700 crore and after keeping Rs.2,000 crore or Rs.2,500 crore for dividend, we had ploughed back about Rs.9,000 crore and in this first-half year also we have already made a profit of Rs.7,500 crore.”
“So we should definitely see a plough back of Rs.10,000 or Rs.11,000 crore as our internal surplus. So, Rs.11,000 plus Rs.6,000 the total capital reinforcement would be Rs.17,000 crore. It is not the government alone puts in the money but we also got internal surplus. Going forward, in Basel-III, banks should need a lot of additional capital. That is why, we are positioning ourselves as the premier bank of India as a well capitalised bank,” Mr. Chaudhuri added.