Government says no to SBI rights issue in fiscal 2012

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A much awaited rights equity issue by State Bank of India will not happen in the current fiscal year, but the government will pump in cash to shore up the state-run bank's capital, secretary, financial services D. K. Mittal said on Wednesday.

India's largest bank, which is 59 per cent state-owned, has sought as much as 200 billion rupees ($4.1 billion) from the government through a rights issue since last year to boost its Tier-I capital.

The lender reported Tier I capital ratio of 7.6 per cent at the end of June, below the 8 percent level the government has pledged to maintain in state banks.

Finance Minister Pranab Mukherjee said the government will try to maintain 8 percent Tier I capital adequacy for SBI, and reiterated that an adequate sum will be provided for capitalisation of SBI and other state-run lenders.

Last week, Mittal said that the Indian government will infuse 45 billion to 80 billion rupees in SBI by March 2012.

Analysts said the delay in the rights issue is unlikely to have a severe negative impact on the lender's books as government has promised to pump in money via other channels and demand for loans is slow.

"Current market scenario is not conducive for large rights issue, and it is expected that the rights issue will not happen," said Manish Ostwal, an analyst with brokerage firm KR Choksey.

"The government will infuse capital in other forms. We don't see any significant risk on account of capital adequacy due to non-availability of capital from the government."

Shares of SBI has lost about 34 percent so far in 2011, dragged down by higher provisions for bad loans and lower profits.

Earlier this month, rating agency Moody's downgraded the standalone rating for SBI citing thin capital and weakening asset quality.

"For the current fiscal, the SBI should be comfortable with 8 percent capital adequacy, with demand for loans not very high," an analyst with another local brokerage who did not wish to be named said.

SBI sees loan growth of 16-19 percent for the fiscal, its chairman Pratip Chaudhuri had said in August at the first quarter earnings conference.

High interest costs on the back of continuous monetary tightening by the central bank in the last 19 months has dampened appetite for credit.

Mittal said the government will finalise bank capitalisation requirements by Nov. 15, adding the ministry's banking division has asked for budgetary allocation for capitalisation.

SBI hopes to receive an injection of up to $2 billion from the government by the March end, it said earlier this month.

At close, shares of SBI were up 2.78 percent at 1,918.35 rupees in a strong Mumbai market.