Govt. to invest Rs 10,000 crore in State Bank of India

The Union Cabinet has given its approval for enhancing the capital of State Bank of India by subscribing to the Rights Issue of Equity shares of the State of India amounting to around 100 billion rupees ( Rupees Ten Thousand Crore) against issue of SLR, Marketable Government Securities and create a Securities Redemption Fund for redeeming these Securities on the due date.

SBI would raise 167.4 billion rupees ($4.2 billion) from the rights issue, including the contribution from the government, which owns about 60 percent of the bank.

The actual number of shares to be subscribed, the total amount subscribed, coupon rate and tenure of the securities, and other modalities will be worked out by the Government in consultation with the Bank, keeping in view the extant SEBI guidelines, market conditions and other relevant factors.

It will enable the Government to receive likely around Rs. 1358 crore by way of dividend and taxes from the Bank during the years 2008-09, as against an expenditure of around Rs. 790 crore as interest to be paid to the Bank for proposed securities. However, in subsequent years, the Government is likely to receive higher amount of additional revenues ( Rs. 1552 crore in the year 2009-10 and Rs. 1892 crore in the year 2010-11 and thereafter).

The additional growth of the bank due to its increased capital base will also have multiplier effect on the overall performance of the bank, which 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 transaction will be completed within the current financial year and a Securities Redemption Fund will be created thereafter.

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