New Delhi, Nov 30: The Union Cabinet today approved enhancing the capital of state-run State Bank of India (SBI) by subscribing to the rights issue of equity shares amounting to about Rs 10,000 crore.
The shares will be against the issue of SLR, Marketable Government Securities and will also create a Securities Redemption Fund for redeeming these securities on the due date, said a statement.
The government which is the majority shareholder in the SBI, was not in favour of a follow-on public issue, where its stake will be diluted from the current 59.7 per cent to the 55 per cent.
The rights issue has now allowed the bank to raise tier-I capital without diluting the government shareholding after issue of preference shares was not an option given the amendment of the SBI Act.
The actual number of shares to be subscribed, the total amount subscribed, coupon rate and tenure of the securities, and other modalities will be worked out by the government in consultation with the SBI, keeping in view the extant SEBI guidelines, market conditions and other relevant factors.
It will enable the government to receive about Rs 1,358 crore in the form of dividend and taxes from the SBI during 2008-09, as against an expenditure of about Rs 790 crore as interest to be paid to the bank for proposed securities.
However, in subsequent years, the government is likely to receive higher amount of additional revenues of about Rs 1,552 crore in 2009-10 and Rs 1,892 crore during 2010-11.
The additional growth of the bank due to its increased capital base will also have multiplier effect on the overall performance of the bank, which will gain in terms of its position in the industry, ratings - both in international as well as domestic markets, and increased valuation of its stock, besides boost to the economy at large.
The transaction will be completed within the current financial year and a Securities Redemption Fund will be created thereafter.
The country's largest lender was in need of capital not only to fund its growth, but also to meet Basel-II requirements and AS-15 norms.