State Bank of India (SBI), the country's largest commercial bank, is all set to tap the primary market without diluting the stake held by the reserve Bank of India (RBI). SBI chairman O.P. Bhat said that the bank might tap the equity market in 2007-08 once the SBI Act is amended. "For raising Tier I capital we are awaiting approval for the bill....we would not be able to do so before next financial year," Bhat said. He said that SBI will raise capital according to its requirement. "It does not mean that there is going to be a dilution in RBI's stake in the bank," Bhat said, adding that the Tier-I capital will be raised through a public offer. The SBI Act stipulates that RBI's stake in SBI should not go below 55%. The bill to amend the SBI Act will soon be tabled in Parliament to allow RBI's minimum stake to fall to 51%.
Separately, Finance Minister P. Chidambaram said that the Government intends to take over the central bank's stake in SBI and that the move would not come in the way of the bank's proposed public issue. He said that SBI had a capital adequacy ratio of 12.63% as on Sept. 30, well above a minimum regulatory requirement of 9%. "Further, the bank has a number of avenues, irrespective of its ownership, to strengthen its capital like raising fresh equity, issue innovative perpetual debt instruments, issue various capital instruments to shore up its Tier II capital," he told the parliament. "Hence, transfer of RBI shareholding in SBI to the Government would not in any way adversely impact the capital raising ability of the bank," the Finance Minister added.
The Centre is planning to buy RBI's stake in SBI, which is valued at Rs290bn. Vinod Rai, Secretary in the Ministry of Finance indicated that the Government's stake could reduce to 51% in SBI, if it bought the stake from the RBI as per the plan. The RBI holds 59.73% of SBI, but has proposed transferring that to the Government as it feels that it is inconsistent for it to be a bank owner and a regulator.