Govt likely to approve SBI capital infusion proposal soon

"We will decide about capital infusion soon may be in two weeks or so," an official source said. The capital infusion proposal of the bank is being examined, sources said, adding all options are opened including rights issue.

Capital infusion will happen in banks as and when they need, that is the commitment of the Cabinet and the government, sources added. As per the proposal, SBI requires Rs 20,000 crore to fund its growth plans over the next two fiscals.

Based on the proposal, sources said, various possibilities are being looked at for the capital infusion. It could be by way of a rights issue, preferential share issue, warrants, etc.

It is too premature to comment on the exact mechanism for the capital infusion but capital infusion will take place by the end of the current fiscal, sources said. The government is committed to providing adequate capital to all public sector banks so as to maintain their Tier-I capital at 8 per cent and the government's stake over 58 per cent, sources added.

As of June, 2011, the Capital Adequacy Ratio (CAR) of SBI stood at 11.6 per cent. Of this, Tier-I capital stood at 7.6 per cent at the end of first quarter, against the minimum 8 per cent level desired by the government.

Earlier this month, SBI Chairman Pratip Chaudhuri had said, "Government of India, Department of Financial Services is very much looking into it (rights issue proposal). As of now, there is no interim response (from the government) but it is receiving attention." He said, "there is no question of looking at any other option but rights issue is very much on the track. We have made our proposal to the government giving different scenarios and different levels of capital adequacy which requires different levels of capital."

The government has 59.4 per cent stake in SBI. In case a rights issue is approved and the government wants to retain its holding at the current level, it would need to subscribe to 59.4 per cent of the total rights being issued.

It is to be noted that the country's largest lender had raised over Rs 16,000 crore through a rights issue in 2008. In the last SBI rights issue, the government contribution was in the form of bonds to the bank instead of cash.