New Delhi, March 8: The government today introduced a bill in Parliament to reduce its minimum holding in the State Bank of India (SBI) to 51 per cent as it seeks to arm India’s No. 1 bank with greater fund-raising powers.

The amendment to the State Bank of India Act, 1955, if cleared, will enable the bank to split its shares and undertake preferential or private placements to meet future capital requirements, provided the government holding does not fall below 51 per cent.

Under the new law, the SBI will also be allowed to issue bonus shares to existing shareholders.

Earlier, the central government had announced plans to reduce its holdings in state-run banks while retaining majority control.

Political parties and unions, however, are opposed to the move. “We will continue to oppose the bill. Government holding in the SBI should not be reduced. On the contrary, it should be hiked,” CPM leader Basudeb Acharya told The Telegraph.

As on December last year, the government held a 59.41 per cent stake in the SBI. Under the existing act, government holding in the bank cannot go below 55 per cent.

The SBI (Amendment) Bill proposes to allow the bank have government holding on a par with other nationalised banks at 51 per cent. “The move will give headroom to the SBI to raise around Rs 6,000 crore,” said an SBI official. The Reserve Bank of India had a majority stake in the SBI, which was subsequently transferred to the government.

The government estimates that the bank may raise over Rs 25,000 crore through preference shares to maintain a capital adequacy ratio (CAR) of over 12 per cent by 2013.

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The SBI (Amendment) Bill, 2006, was introduced in the Lok Sabha on December 18, 2006 and subsequently sent to the parliamentary standing committee on finance. The parliamentary panel had approved the amendments in August 2007. However, the bill lapsed because of the dissolution of the 14th Lok Sabha.

“It is proposed to introduce the State Bank of India (Amendment) Bill, 2010 broadly on the same lines of the lapsed bill,” finance minister Pranab Mukherjee said while presenting the bill in Parliament.

The bill also proposes to increase the authorised capital from Rs 1,000 crore to Rs 5,000 crore. Moreover, the bank will have four managing directors instead of two.

The amendment will enable the SBI to do a follow-on public offer because the present law restricts capital-raising through this route. The SBI had plans to go for a public offer in 2007-08 but deferred it as the amendment bill, which was introduced in December 2006, had not received Parliament’s nod.

SBI chairman .P. Bhatt had recently said the bank would need to raise about Rs 40,000-50,000 crore over the next five years to meet its credit needs.

For this year, Bhatt said the bank was looking to raise Rs 10,000-20,000 crore through a rights issue. However, a rights issue will require government co-operation since it will have to subscribe to the offer.

The SBI Act was last amended in 1993 to enable the bank to access the capital markets. While the SBI can issue equity shares or bonds, there is no provision that will allow it to issue preference and bonus shares.

News of the introduction of the bill led to a rally in the SBI stock. On the BSE today, the scrip gained 1.16 per cent, or Rs 23.80, to close at Rs 2,070.25.

On the National Stock Exchange, the scrip settled at Rs 2,064.50, up 0.85 per cent. Over 51.22 lakh shares of the lender changed hands on the two bourses.