After waiting for over three years, the government has finally relented, although partially, and is likely to provide a Rs 8,000 crore lifeline to State Bank of India. This will enable the country's largest lender to bolster its capital base and push for rapid expansion of its loan book.
SBI has been seeking to raise Rs 20,000 crore via a rights issue and given the government's holding of over 59%, its share in the fund raising would have amounted to around Rs 12,000 crore. The finance ministry was, however, reluctant to part with funds during the current financial year due to the tight fiscal situation.
Besides, it said that the bank only needed funds in 2013-14, especially when business was slowing down due to weak global economic environment. There is, however, a slight change in mood in recent weeks, especially after ratings agency Moody's citing stress on asset quality and pressure on Tier-I capital, downgraded the bank from C- to D+. The rating reflects "modest intrinsic financial strength, potentially requiring some outside support at times". A lower rating will increase the cost of international borrowings by the bank.
SBI chairman Pratip Chaudhuri, however, sought to play down the downgrade, and said, "The D+ rating maps to Baa3 which is still investment grade. Bank of Baroda, Punjab National Bank, Bank of India are also at D+; we were the only exception so far. The present rating of SBI is the same as the government of India."
A senior government official told TOI that the department of financial services was pushing for providing Rs 8,000 crore, while the remaining demand will be met after the government decided on the roadmap for further fund infusion in public sector banks.
Last week, TOI had reported that a committee has been set up in the department of financial services that will look at the capital requirement of the state-owned lenders and also look at new tools such as differential voting right shares and a holding company structure.
The need for providing immediate funding to SBI has also gained momentum as the bank's Tier-I capital adequacy ratio is estimated at 7.6% compared to the 8% benchmark for government banks. Even at the existing capital adequacy ratio, SBI is above the regulatory requirement. The bank's capital base was eroded as it provided funds for bad debts as well as meeting pension requirements.
SBI has repeatedly said that it will get government funding during the current financial year. Chaudhuri recently told TOI that the Rs 20,000 crore demand was the upper end and the bank had provided a band in its fresh demand to the government.
In 2008, the government had subscribed to a Rs 20,000 crore rights issue by SBI to help augment its capital base. But following the rapid pace of expansion during OP Bhatt's tenure, the bank had demanded more funding to help grow its loan book and retain at least 25% of the market share.
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