The Telegraph
Since 1st March, 1999
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Stage set for SBI flotation
- Ordinance will enable government to acquire RBI stake by month-end

June 15: The State Bank of India, the countryís largest bank, will come out with one of the biggest share flotations by the banking industry later this year.

The first step towards the stake sale was taken today with the Union cabinet clearing a proposal that allows the Centre to buy up Reserve Bank of Indiaís 59.73 per cent holding in the SBI at an estimated cost of Rs 40,000 crore.

The stake transfer will take place after a presidential ordinance is issued amending the State Bank of India Act, 1955. The government will introduce a bill in the monsoon session to replace the ordinance, information and broadcasting minister P.R. Das Munshi told reporters after the cabinet meeting.

The RBI had proposed the stake transfer as it felt that its position as the owner of a commercial bank was inconsistent with its role as a banking regulator.

Officials said the finance ministry sought cabinet approval for the issue of an ordinance so that the Centre could hand over the cheque to the RBI by June 30. The ministry had to push for an ordinance as a bill to amend the Act was pending with a parliamentary standing committee.

The speculation is that the SBI flotation will take place in the next three months but officials of the bank could not be reached for comment.

The SBI is planning to raise at least Rs 5,000 crore from the share flotation. It intends to use the money to expand existing operations and enter venture capital, private equity and wealth management segments.

The bank will also need to widen its capital base and meet the Basel II guidelines on capital adequacy which come into effect from March 31 next year.

Several banks have already hit the capital market with their flotations with ICICI Bank being the largest with a domestic issue of Rs 8,750 crore and an equal amount to be raised overseas. Other issuers include HDFC Bank and UTI Bank.

The size of the SBIís issue could swell if the government was able to build political consensus on a larger public issue that would reduce its shareholding in the bank to around 51 per cent.

Unlike other banks, SBI is governed by a separate Act which pegs the minimum government holding at 55 per cent. Last August, the Union cabinet cleared an amendment of the Act which would allow the stake to go down to 51 per cent. In December, finance minister P. Chidambaram introduced the State Bank of India (Amendment) Bill, 2006 that seeks to bring down the RBI shareholding to 51 per cent.

The issue was lobbed to the standing committee amid strong opposition from the Left parties to any reduction in the governmentís stake.

The finance ministry wanted to insert a clause that would enable it to buy the RBI's stake when the bill came back to the House. Since the parliamentary standing committee hasnít submitted its report, the ministry did not want to dawdle on the issue and pushed for an ordinance.

Although the government got parliamentary approval during the budget session to enable SBI to reduce its stake in seven associate banks, it could not secure approval for the transfer of the RBI shareholding to the government.

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