SBI slashes rights issue size to Rs 5,000 cr
State Bank of India (SBI), the country’s largest lender, is likely to raise Rs 5,000 crore through a rights issue of shares by December, a move expected to shore up the bank’s Tier-I capital to above eight per cent for the current financial year.
The government is likely to subscribe its share fully in cash. It is expected to pump in around Rs 3,000 crore. The move comes within a week after rating agency Moody’s Investors Service cut SBI’s stand-alone rating, citing concern over capital and rapid deterioration in asset quality.
“We have submitted our requirement to the government. We would require around Rs 20,000-30,000 for the next three years, a part of which would come from internal accruals. The Rs 5,000-crore rights issue would be the first tranche in the entire process,” SBI Chairman Pratip Chaudhuri told Business Standard. “The government is ready…the issue is likely to get through by December,” he said, adding the government would subscribe to the shares by infusing cash.
The bank had requested for a rights issue of Rs 20,000 crore, for which the government has to infuse Rs 12,000 crore to maintain its shareholding. As on June 30, the bank had Tier-I capital of 7.6 per cent, higher than the six per cent mandated by the regulator. The government, however, insists public sector banks maintain minimum Tier-I capital of eight per cent.
The government holds a stake of 59.4 per cent in SBI. To maintain this shareholding, it has to infuse Rs 3,000 crore. The government says it would maintain a minimum stake of 58 per cent in state-run banks. The bank has submitted a response to the government on the rating downgrade, and already started implementing measures to improve the bank’s efficiency.
“Over the years, we have been slightly wasteful in using our capital. We are trying to find out ways on optimising our capital resources, by cutting on wasteful usages across the board. We are also emphasising on improving the operational efficiency of the bank,” Chaudhuri said. The bank is also focusing on the export guarantee scheme and the credit guarantee scheme for micro and small enterprises (CGTSME), which would free up its capital, he said. While the bank export guarantee scheme would cover Rs 30,000 crore of outstanding loans, the bank plans to double the coverage under the CGTSME scheme.
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