SBI plans to list its insurance, MF subsidiaries to raise capital for Basel-III

State Bank of India (SBI), the country’s largest lender in terms of assets, is planning to sell shares in its insurance and asset management subsidiaries, Bloomberg reported quoting SBI chairman Arundhati Bhattacharya.

“We are in talks with our joint-venture partners regarding the listing of the insurance units,” the report said quoting Bhattacharya.

Besides, SBI is also in discussions with Paris-based Amundi Asset Management, which holds a stake in SBI Funds Management Pvt. Ltd, for a potential equity issue, Bhattacharya said, adding, a final decision is yet to be made on this.

The capital thus raised will be used to meet the so-called capital requirements of the bank as required by the Basel-III norms.

According to the report, SBI needs to raise more than Rs 80,000 crore of additional equity capital by 2019 to comply with international standards laid out by the so-called Basel-III regulatory regime.

Indian banks will have to comply with the Basel-III capital requirements by March, 2019. The estimated capital requirement of India’s state-run banks to meet the Basel-III norms over the next five years is about Rs 2.4 lakh crore.

Besides the Basel-III norms, the rising chunk of bad and restructured loans too have increased the capital requirements of Indian banks. The total bad loans of 40-listed banks in India, as of end March, stood at Rs 2.4 lakh crore, while the chunk of restructured loans stood at about the same level. Under norms, banks need to set aside more funds as provisions.

For bad loans, this could be anywhere between 20-100 percent of the loan amount, depending upon the category of the bad loans. For a new restructured loan, the required provision is 5 percent of the loan value. Hence, an increase in the stressed loans results in higher capital requirement for banks.

For 2014-15, the government has earmarked only Rs 11,200 crore as capital infusion in state-run banks.