Chart: SBI desperate for cash, stock hits 2-year low

The country’s largest public sector bank, State Bank of India, is clearly in dire needs of funds.

The stock today hit a two year low after the bank advertised a rate of 8.5 percent on short term deposits for a period of 7 to 180 days. The rate offered by SBI is one of the highest in the industry. Though the rate of 8.5 percent is for deposits over Rs 1 crore, those below this amount will be getting a 7 percent interest rate.

ICICI Bank offers a rate of 3.75 percent for deposits between 7 to 14 days, which progressively goes up to 7 percent for a 184 day deposit.

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Traditionally SBI has offered one of the highest interest rates in the industry.

SBI’s second quarter results showed that it was under pressure after its Tier 1 capital fell to 7.47 against the mandated 8 percent. The bank had been hit by higher provisioning and incremental non performing loans.

Even though the bank reported-better-than expected results for the September ended quarter, bad loans and poor asset quality have been the company’s biggest concerns.The bank posted a net profit of Rs 2,810 crore for the quarter ended 30 September against Rs 2,501 crore for the same period last year. Total income is Rs 29,394 crore for the second quarter against Rs 23,813 crore for the same quarter last year.

Infact the bank’s CFO Diwakar Gupta also admitted that the bank needs to raise Rs 8,000 crore by March to maintain an 8 percent tier-I capital adequacy ratio. The government is planning to invest Rs 4,000 crore in the bank, which will not be enough for the bank.

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

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 8,000 crore in the bank through other means by March 2012.

Looking at the bank’s performance, it is high time the government steps up its efforts and provide the bank with the much-needed capital.