Govt looks to cut stake to let SBI hit D-Street
Wednesday, 10 March 2010
NEW DELHI, Mar 9 (Economic Times): The government has taken the first step to let the country's largest lender State Bank of India (SBI) mop up substantial funds from the stock market.
On Monday, it moved a bill seeking parliament's go-ahead to reduce government shareholding in the bank to a minimum of 51 per cent from the current threshold of 55 per cent.
The passage of the bill will give SBI the headroom it has long been waiting for to raise more equity capital from the market. At the current price of SBI shares, this would mean a mobilisation of Rs 200 billion.
Almost a decade ago, SBI had put its cards on the table when the then chairman GG Vaidya told North Bloc the government should either organise capital for SBI or let the bank enter the market.
Once the law is changed, SBI cannot only raise an additional 15 per cent or more equity, but can also get a chance to float preference shares to raise long-term funds, place equity with financial investors and come out with bonus issues to its shareholders.
The government currently holds 59.41 per cent. Initially, this stake was held by the Reserve Bank of India (RBI) and it took some years before the holding could be transferred to the government.
The stock closed at Rs 2,070.25 Monday on the Bombay Stock Exchange, up 1.16 per cent from Friday's price. SBI will need to raise nearly Rs 400 billion over the next five years to maintain growth momentum, according to a recent statement by chairman OP Bhatt.
While the government already has parliament's approval to bring down its stake to 55 per cent in SBI, this gives the bank limited space in fund-raising.
Significantly, the bill aims to "provide for flexibility in the management of the bank". If the bill is passed, the centre will be empowered to appoint four managing directors (as against two now), 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.
The State Bank of India (Amendment) Bill, 2010, moved by finance minister Pranab Mukherjee, also seeks to allow the government to raise the bank's authorised capital to Rs 50 billion from Rs 200 million. The government has also sought the authority to increase or reduce the bank's authorised capital in consultation with RBI.
It has been clarified that the future preference shareholders of SBI can vote if their rights like non-payment of dividend (or the interest coupon attached to preference shares) are violated. However, the voting right in such cases will be capped at 10 per cent, just like in any other commercial bank under the Banking Regulation Act.
On Monday, it moved a bill seeking parliament's go-ahead to reduce government shareholding in the bank to a minimum of 51 per cent from the current threshold of 55 per cent.
The passage of the bill will give SBI the headroom it has long been waiting for to raise more equity capital from the market. At the current price of SBI shares, this would mean a mobilisation of Rs 200 billion.
Almost a decade ago, SBI had put its cards on the table when the then chairman GG Vaidya told North Bloc the government should either organise capital for SBI or let the bank enter the market.
Once the law is changed, SBI cannot only raise an additional 15 per cent or more equity, but can also get a chance to float preference shares to raise long-term funds, place equity with financial investors and come out with bonus issues to its shareholders.
The government currently holds 59.41 per cent. Initially, this stake was held by the Reserve Bank of India (RBI) and it took some years before the holding could be transferred to the government.
The stock closed at Rs 2,070.25 Monday on the Bombay Stock Exchange, up 1.16 per cent from Friday's price. SBI will need to raise nearly Rs 400 billion over the next five years to maintain growth momentum, according to a recent statement by chairman OP Bhatt.
While the government already has parliament's approval to bring down its stake to 55 per cent in SBI, this gives the bank limited space in fund-raising.
Significantly, the bill aims to "provide for flexibility in the management of the bank". If the bill is passed, the centre will be empowered to appoint four managing directors (as against two now), 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.
The State Bank of India (Amendment) Bill, 2010, moved by finance minister Pranab Mukherjee, also seeks to allow the government to raise the bank's authorised capital to Rs 50 billion from Rs 200 million. The government has also sought the authority to increase or reduce the bank's authorised capital in consultation with RBI.
It has been clarified that the future preference shareholders of SBI can vote if their rights like non-payment of dividend (or the interest coupon attached to preference shares) are violated. However, the voting right in such cases will be capped at 10 per cent, just like in any other commercial bank under the Banking Regulation Act.