The Rs 5-trillion State Bank of India (SBI) has firmed up plans to raise Rs 15,000 crore in equity and debt this financial year to fund its diversified business growth plans. This is the first time that the bank is raising such a huge amount of capital to fund its growth strategies. This will go beyond its credit growth target.

In 2006-07, the bank had raised Rs 9,442 crore of domestic debt capital and another $400 million overseas by way of innovative perpetual debt instruments, which qualified for tier 1 capital status. “Over Rs 15,000 crore of capital may be required in the coming year to meet the growing requirements. The bank plans to raise this by a combination of equity and debt capital,” O P Bhatt, chairman, SBI, has said. The bank will raise around Rs 7,000 crore of equity during the year.

The RBI and the Centre should permit newer forms of capital, such as preference shares and non-voting shares, to enable the bank shore up its tier 1 capital, if the minimum government shareholding could not be relaxed or if the government could not take up its rights entitlement in future offerings, said Bhatt.

The capital adequacy ratio of the bank in March 2007 stood at 12.34 per cent, of which tier 1capital is 8.01 per cent. “The bank has to expand aggressively to sustain its drive of recovering market share, strengthening the core business, diversifying into other financial services and improving the bank’s profitability,” he added. “We are in the process of launching an infrastructure fund, private equity, venture capital and pension funds management,” said Bhatt. “To avail of emerging opportunities, the bank has set up a corporate strategy and a new business group, which plans to enter into areas of merchant acquisitions,” he said.

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