SBI set to get capital infusion

CASHING IN

New Delhi: State Bank of India might have missed out on fund infusion in the Budget, but it is in line not just to receive additional equity support but also get more than what other public sector banks have received.
    Government officials said the government is assessing SBI's capital requirement and the finance ministry is contemplating if it should have a Tier I capital adequacy ratio of 9-9.5% against the prescribed 6%. In case of all other public sector players, the government is trying to ensure that the Tier I capital be at least 8%. The move is aimed at ensuring that SBI retains its premier position in India and is able to access capital at a lower cost. "There are several global banks which have a far higher capital adequacy ratio and we want to ensure that SBI is not at any disadvantage," said an official.
    A lower capital adequacy ratio, together with India's investment grade sovereign rating, would make SBI uncompetitive in developed markets and raise the cost of funds.
    Capital adequacy ratio is the proportion of capital to the bank's risk. Tier I refers to the core equity capital with a bank. As a bank increases its business, it needs to raise more resources to meet the capital adequacy ratio.
    SBI, which is seeking to grow its business by 20-25% annually, has been making a case to raise around Rs 20,000 crore through a rights issue, of which the Centre will provide Rs 12,000 crore by virtue of its 59% stake. Though the bank that has a market share of 25%, had sought fund infusion during the current financial year, given the fiscal compulsions, the government did not provide any funding in the Budget.
    A senior SBI executive said that while it was comfortable with capital at present, it will need resources over the next 12-18 months to sustain growth. In the absence of fund infusion, the bank would be left with no choice but to raise funds through a public offer resulting in the government's shareholding falling below the 51% floor.