The Board of directors of State Bank of India (SBI) on Monday approved a approved a proposal to raise up to Rs 16,736.31 crore through a rights issue.

In a notification to BSE, the country's premier bank said the rights issue would be in the ratio of 1:5. The price for the rights issue has been fixed at Rs 1,590 per share (face value of Rs 10 each and a premium of Rs 1,580 per share) as against the current price of Rs 2,490 per share. The price at which shares would be offered represents about 36 per cent of discount to State Bank of India’s current share price.

The issue capital of bank will be raised from Rs 526.30 crore to Rs 650 crore. The decision of the SBI’s board came one-and-a-half months after the Union Cabinet gave nod to the rights issue.

The issue would also be offered to existing SBI’s Global Depository Receipts (GDR) holders. The Union Government is expected to invest around Rs 10,000 crore in the rights issue to maintain its stake at over 59 per cent, for which it would issue bonds to SBI.

“We have decided to subscribe to the rights issue. ” Finance Minister P Chidambaram had said. These bonds would be redeemed through the proposed Securities Redemption Fund, he said adding the SRF would be funded through taxes and dividends received from SBI.

‘Deferred basis’

Annual cost of servicing these bonds would come at around Rs 790 crore, Chidambaram had said, adding the government is required to put at least this much amount to the redemption fund.

The bank has been exploring various options to mop up funds, but a rights issue would allow the bank to raise capital without diluting the government shareholding.

It is understood that the government was not in favour of a follow-on public issue, where its stake would have been diluted from the current over 59 per cent to 55 per cent, the minimum prescribed under the SBI Act.