Rights issue latest by Q3,says SBI chief

The countrys largest lender State Bank of India on Thursday said that it was planning to go through with its Rs 20,000-crore rights issue by end of the calendar year.

The countrys largest lender State Bank of India on Thursday said that it was planning to go through with its Rs 20,000-crore rights issue by end of the calendar year. We expect the rights issue to happen by the second or third quarter, the banks chairman Pratip Chaudhuri said.

The board of directors of the bank will meet Finance Minister Pranab Mukherjee on August 6 and is likely to raise the issue with him. He (the Finance Minister) will interact with the board to understand what kind of support the bank requires. We will talk to the government to know their appetite and preference, Chaudhuri said.

Amid speculations regarding the size of the rights issue,the chairman clarified that the bank has approached the finance ministry with a set of proposals which include follow-on public offer (FPO) and placement with institutional investors as options.

The bank had to take out Rs 7,500 crore from tier I capital during the last quarter of 2010-11 towards meeting provision for pension. This has pulled down the banks tier I capital adequacy ratio to 7.72 per cent from 9 per cent. The bank will now require Rs 47,000 crore over the next three years,of which Rs 20,000 crore will come from the rights issue. The rest will be taken care of by the banks annual profit.

Chaudhuri said the first option for the Central government will be the rights issue. Although the government holds 59 per cent stake in the bank it can bring it down to 55 per cent or even 51 per cent.

So for different scenarios there will be different options. If they want to keep their stake at 59 per cent the rights issue will have to go through. If they want to bring stake down to 55 per cent then it could be a combination of a rights issue and FPO or placement with institutional investors, Chaudhuri said.

He said that initial signs of deceleration is already evident in the Indian economy and the latest index of industrial production numbers are not encouraging. High cost of credit acts as a dampener,specially for long-term projects and capital expenditure (of companies), he said.

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Maintaining that runaway inflation will not be good for the countrys economy,he said that there is no example which shows that high growth rate in GDP happened despite high interest rates for consecutive years. FE