SBI urges govt to take quick decision on rights issue

Mumbai: A day after Moody’s downgraded its credit rating, SBI today asked the government to expeditiously approve the bank’s rights issue proposal to help it shore up capital by about Rs 20,000 crore.

“It (rating action) is a reminder to the bank and all the shareholders that the recapitalisation measures requires greater urgency,” Chaudhuri told reporters here. The government is the largest shareholder of the bank. with 59 per cent equity. It will have to shell out a big amount during the rights issue to maintain its equity holding.

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State Bank of India (SBI) had submitted a proposal to raise Rs 20,000 crore through a rights issue. It requires funding to implement growth plans over the next two fiscals.

Chaudhuri said SBI has “taken note” of rating downgrade and “the recapitalisation, we are hopeful, would be completed by the end of December 2011 and at the most March 2012”.

He said the rating would marginally increase the medium term borrowing cost for the bank. Last month, the bank had doubled its overseas borrowing programme to $10 billion and a rating downgrade would now make borrowing costlier.

“If you want to put a number to that (escalation in cost of fund raising) and if you do a detailed calculation, it would be two basis points,” Chaudhuri added.

SBI shares, which has a market capitalisation of over Rs 1 lakh crore, fell 4 per cent to close at Rs 1,715.30 on BSE.

Moody’s yesterday donwgraded SBI’s financial strength rating by one notch to ‘D+’ due to low Tier-I capital ratio and worsening asset quality.

“This rating applies to our perpetual debt which is called IPDR and qualifies for tier I capital,” Chaudhuri said.

He said the bank has so far issued $625 million of such debt in two tranches - $400 million and $225 million. Both these debts are due for call option in 2017.

“In terms of Basel III, these instruments no longer qualify for tier I capital. Therefore, it is unlikely that we shall be making any such issuances (perpetual debt) in future,” he added.

Further, Chaudhuri said the bank has initiated measures that would lead to more efficient and optimum use of capital. SBI’s Managing Director, International Operations, Hemant Contractor noted that the downgrade will have little material impact as “the bank does not have any immediate plan to visit the market to raise medium term debt”.

SBI had reported a Tier-I capital ratio of 7.60 percent as of June 2011, against the suggested level of 8 percent termed as desirable by the government for public sector banks.

Chaudhuri further said the surpluses and rights issue proceeds would help the bank achieve a Tier I capital adequacy of 9 percent by March 2012.

PTI