In the wake of opposition from Reserve Bank of India (RBI), the government on Thursday decided to subscribe to the rights issue of State Bank of India (SBI) by issuing special marketable government securities instead of statutory liquidity ratio (SLR) marketable government securities.

In other words the government will subscribe to the rights issue through non-SLR bonds that may get SLR status later. The Cabinet at its meeting chaired by the Prime Minister agreed to modify its earlier decision to issue SLR marketable government securities.

SLR is the percentage of total deposits the banks have to maintain in the form of cash, gold or approved securities. At present, the minimum SLR is 25 per cent and SLR status would have enabled SBI to sell them to investors like banks.

The government, which holds 59.7 per cent stake in SBI, will be subscribing to equity shares worth Rs 9,995.99 crore. The rights issue opened on February 18 and closes on March 18. The change in rights issue subscription plan came after RBI raised declined to   give SLR status to such bonds.

Different options

RBI  suggested three options to subscribe to the rights issue i.e. by cash or gold valued at a price not exceeding the current market price or unencumbered investment in instruments that will be referred to as ‘SLR securities.’
Five kinds of securities have been listed under the third option including “any other instrument as notified in future by the RBI for SLR status.” The Finance Ministry will take up the matter with RBI and request it to notify the proposed securities (special marketable government securities) as SLR securities under “any other instrument as notified by RBI”, official sources said.

On receipt of the approval of the Cabinet, the transaction will be completed within the current financial year and, thereafter a “securities redemption fund” will be created to redeem these securities on due date, sources said.