State Bank of India gets government nod for fund tap

Centre to shed stake from 55 per cent to 51 per cent in PSU bank

The Bill titled as State Bank of India (Amendment) Bill, 2010 was introduced by the Finance Minister Pranab Mukherjee.  The SBI Amendment Bill is being widely viewed as a legislative measure by the government to further push forward reform in the banking especially in the public sector by giving state-owned banks flexibility to raise funds from market fop enhancing their capital base.

The bill seeks to reduce shareholding of the central government from 55 per cent to 51 per cent consisting of the equity shares of the issued capital and provide for enhancement of capital of SBI by issue of preference shares to enable it to raise resources from the market by public issue or preferential allotment or private placement.

The bill also seeks to increase the authorised capital of the SBI to Rs 5,000 crore
divided into shares of Rs 10 each or such denomination as may be decided by the Central Board with the approval of RBI and also to enable the government to increase or reduce the authorized capital in consultation with the apex bank. The bill said the SBI Act, 1955, was amended in 1993 to enable the bank to access capital market.

Flexibility in management

“While SBI can access capital market by issuing equity shares or bonds, or by both equity shares and bonds, there is no express provision under the SBI Act to enable the bank to issue preference shares and also bonus shares,” it said in statement of objects and reasons.

The bill also aims to provide for flexibility in the management of the bank. For instance, the government can only appoint not more than four managing directors in consultation with the RBI. The government introduced the SBI Amendment Bill in the Lok Sabha  way back in December 2006. It was examined by the Standing Committee on Finance. However, the bill lapsed due to the dissolution of the 14th Lok Sabha. The current bill is broadly on the same lines of the lapsed bill incorporating certain recommendations of the Standing Committee.