SBI needs to raise Rs 8,000 cr by March, says CFO

State Bank of India, India’s largest lender, needs to raise Rs 8,000 crore ($1.63 billion) before March to maintain an 8 percent tier-I capital adequacy ratio, a top official at the bank said on Sunday.

Rating agency Moody’s last month downgraded the standalone rating of SBI citing thin capital and weakening asset quality.

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The rating agency said the lender’s reported Tier 1 capital ratio of 7.6 percent at the end of June, which was below the 8 percent level the government had pledged to maintain in state banks, pushed its rating into the lower band.

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“We need to raise Rs 8,000 crore before March to maintain 8 percent Tier-I,” said Diwakar Gupta, chief financial officer at the state-run lender, without providing details of the fund-raising plan.

“I think the government will ensure to enable us to do it.”

State Bank, which is 59 percent owned by the government, has doubled its overseas borrowing target to $10 billion. But its fund-raising is expected to become more expensive after Moody’s rating action, squeezing margins at its overseas operations.

State Bank has sought as much as Rs 20,000 crore from the government through a rights equity issue since last year to boost its Tier-I capital.

However, a cash-strapped government has declined the rights offer in the current fiscal year, saying it will inject Rs 4,500 crore to Rs 8000 crore in the bank through other means by March 2012.

While rising interest rates and slowing growth in Asia’s third-largest economy are eroding asset quality at banks, the central bank’s recent move to deregulate savings interest rate is seen weighing on their profits by pushing up cost of funds.

Savings deposits are a source of low-cost funds for banks, which form 22 percent of their total deposit base.

The Reserve Bank of India (RBI) last month stipulated that each bank would have to offer an uniform rate of interest on savings bank deposits up to Rs 100,000. Above that, it may provide differential rates of interest.

Some private banks have raised savings interest rates by up to 2 percentage points after the central bank’s decision.

However, Gupta said SBI has no immediate plans to raise interest rates on the saving account deposits, as it would adversely affect profits.

“We are not going be the first mover,” he said, adding a 100 basis point increase in interest rate on saving deposits would cost Rs 3,500 crore.

Reuters