Centre to issue special securities to SBI

The bank will mop up Rs. 16,736 cr.

through rights issue

Huge additional capital required to

meet growth targets

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NEW DELHI: The Union Cabinet on Thursday approved the issue of ‘special marketable securities,’ amounting to Rs. 9,995.99 crore to enable the Central Government to subscribe to the rights offer of State Bank of India.

The Cabinet decision is, in effect, a modification of its earlier approval that sought to provide the SLR (Statutory Liquidity Ratio) status to government securities as the Reserve Bank of India (RBI) declined to grant that status.

Under the SLR norms stipulated by the RBI, it is mandatory for banks to park 25 per cent of their deposits in government securities and, thus, the provision of the SLR status to these securities would have helped SBI meet the central bank’s guidelines.

“The Government is likely to receive around Rs. 1,449 crore additionally by way of dividend and taxes from the bank [SBI] during 2008-09, as against an expenditure of around Rs. 825 crore as interest to be paid to the bank for the proposed securities,” an official statement said. However, in subsequent years, the Government is likely to receive higher amount of additional revenue (Rs. 1,683 crore in 2009-10, and Rs. 2,049 crore in 2010-11 and thereafter), the statement pointed out.

In a bid to raise additional capital to meet its growth targets, the country’s largest state-owned bank had decided to issue 10.5 crore equity shares on a rights basis so as to mop up Rs. 16,736.31 crore. The issue, which opened on February 18, will close on March 18. The Government, in order to maintain its 59.7 per cent stake in SBI, had decided to invest nearly Rs. 10,000 crore. However, with the RBI declining to accord the SLR status to the bonds to be offered to SBI by the Government as its subscription to the rights offer, the Finance Ministry had to approach the Cabinet again for a review of its decision.

Sources said that although the Finance Ministry would continue to take up the matter with the RBI and request it to notify the proposed securities as SLR securities, due to time constraint, it had to ask the Cabinet to amend its decision taken on November 29 last year.

Modified approach

The official statement said that on receipt of the modified approval by the Cabinet, “the transaction will be completed within the current financial year and, thereafter, a ‘securities redemption fund’ will be created to redeem these securities on due date.”

According to SBI estimates, it would require an additional capital, totalling Rs. 1,02,574 crore over a five-year period to meet its growth targets, its leadership in the banking industry as also various regulatory norms. It has projected the need for additional funds, amounting to Rs. 19,535 crore, during the current fiscal, Rs. 14,434 crore in 2008-09, Rs 17,592 crore in 2009-10, Rs. 22,857 crore in 2010-11 and Rs. 28,156 crore in 2011-12.