Bill in LS to allow SBI to raise more capital from market

Finance Minister Pranab Mukherjee moved the State Bank of India (Amendment) Bill, 2010, amidst slogan shouting by SP, RJD and BSP members against the women's reservation bill in its present form.

The bill's statement of objects and reasons said the legislation was aimed at allowing "reduction of shareholding of the Central government from 55 per cent to 51 per cent consisting of the equity shares of the issued capital."

It said the SBI Act, 1955, was amended in 1993 to enable the bank to access capital market. "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 added.

"The amendment bill seeks to provide for enhancement of the capital of State Bank by issue of preference shares, to enable it to raise resources from the market by public issue or preferential allotment or private placement," it said.

"The bill also aims to provide for flexibility in the management of the bank," it added.
It will provide for increasing the authorised capital of the SBI to Rs 5,000 crore and enable the Central government to increase or reduce the authorised capital in consultation with the Reserve Bank of India.

The bill will allow SBI to raise issued capital by preferential allotment of share or private placement or public issue or rights issue in accordance with procedure, apart from bonus shares to existing equity shareholders through Central government direction.

If Parliament passes the bill, the Central government will be empowered to appoint not more than four managing directors, abolish the post of vice-chairman and enable shareholders with at least Rs 5,000 worth of shares to contest the election for directorship of the bank.

With the amendment, the SBI would comply with the Basel Capital Accord, the current international framework on Capital Adequacy adopted in 1988 and Basel Committee on Banking Supervision's new framework, called Basel-II, under which public sector banks are required to increase their capital base to meet minimum requirements.

The UPA-I had first brought the bill in Lok Sabha in December 2006 and it was referred to a Parliamentary Standing Committee. But the bill lapsed due to the dissolution of the House.

The present bill introduced today is broadly on the same lines as the lapsed one, but incorporates certain recommendations of the Standing Committee.