State Bank of India (SBI) to raise Rs 9,576 crore to meet loan book surge and Basel-III norms.
Countries largest bank State Bank of India (SBI) proposes to raise Rs 9,576 crore through a Qualified Institutional Placement (QIP) or a Follow-on Public Offering (FPO) to meet Basel-III requirement and tackle bad loan in book.
“…Considering the business growth during the current year as well as for years to come, there is a need for higher capital, particularly, Tier-1 capital,” State Bank of India said in a notice to stock exchanges. Tier-1 capital is a bank’s core capital, consisting of paid-up shares and reserves. An increase in capital is required in the backdrop of guidelines on implementation of Basel-III capital regulations in India.
These are being implemented from April 1 in a phased manner. As of March 31, 2013, the bank’s capital adequacy ratio (CAR), in terms of Basel-III norms, stood at 12.51 per cent, with common equity Tier-1 (CET-1) capital at 9.14 per cent. Though the current capital ratio is above the regulatory requirement, the bank feels that the CET-1 capital ratio must be maintained at least at 9 per cent for better ratings, to create the proposed counter-cyclical buffer, and to sustain the leverage ratio.
The bank will seek shareholder approval for the QIP/FPO proposal on December 30. In its stock exchange notice, SBI said it has sought shareholder approval on a special resolution proposing “to create, offer, issue and allot by way of QIP/FPO/any other mode, as may be approved by the Government and Reserve Bank of India, such number of equity shares of Rs 10 as decided by the board in their discretion up to Rs 9,576 crore”.
The proposal also mentioned that such an offering will dilute the Government’s shareholding. Although, as a policy matter, the Government’s holding in state-owned banks should not go below 51 per cent, the Finance Ministry prefers to keep the level at 58 per cent. The Government currently holds a little over 62 per cent in SBI.
The bank expects the RBI and the Government to approve its plan to raise capital, the notice said, adding that shares under QIP or FPO could be issued in one or more tranches.
The timing and pricing of the issue will be decided by the bank’s board in accordance with SEBI regulations. The board will also decide on the categories of investors that can participate in the offering.