• Home
• /
• Business

SBI raises $4b to meet credit demand

NEW DELHI — State Bank of India, the country's biggest bank, will raise 160 billion rupees ($4 billion) to help meet credit demand and compete in the booming economy after the government yesterday approved a rights issue.

Competition in India's banking sector may intensify in 2009, when Indian authorities are scheduled to review controls on operations of foreign banks.

The government, which already owns about 60 per cent of SBI, would invest 100 billion rupees ($2.5 billion) in the issue, Finance Minister Palaniappan Chidambaram told reporters.

"The government will subscribe fully to its share," Chidambaram said. The share sale is likely to be completed in the fiscal year to March 2008, the government said in a statement.

Shares of SBI, valued at $30 billion, rose as much as 4 per cent before ending up 1.3 per cent. The shares have risen 85 per cent this year, outperforming a 40 per cent gain in the main index .

The rights issue would equip SBI with capital to compete with local and foreign rivals, said Jigar Shah, said Jigar Shah, head of equities at brokerage K.R. Choksey.

"Capital adequacy is a major issue. It will help the bank make investment in technology and other things to transform itself and face the new situation," Shah said.

The government would pay for its shares by issuing securities to SBI, but said it had not finalised the number of shares it would subscribe to, or the coupon or tenure of the instruments it would issue.

SBI is facing tough competition from ICICI Bank, HDFC Bank and foreign banks such as HSBC, Standard Chartered and Citigroup, which are growing in rapidly in India.

Receipts

The government said its investment in the issue would help it get dividends and taxes amounting to 13.58 billion rupees from the bank in 2008/09 against an estimated expenditure of 7.9 billion rupees for interest to be paid to the bank.

In the following year, it would receive 15.52 billion rupees, and in 2010/11 the amount would rise to 18.92 billion rupees, it said. "(SBI) will gain in terms of its position in the industry, ratings —both in international as well as domestic markets, and increased valuation of its stock, besides boost to the economy at large," the government statement said.

Indian banks have been raising funds to meet the demand for loans from consumers and corporates in Asia's third-largest economy, which grew 9.4 per cent in the fiscal year to March 2007. Chidambaram said yesterday he expected the economy to grow by nearly 9 per cent in the current fiscal year also.