• PAGE ONE
• INDEX
• HOME

SBI projects Rs 8,000-cr capital need in 4 years -- Fresh equity issue ruled out

Our Bureau

NEW DELHI, Oct. 18

STATE Bank of India (SBI) would require an additional Rs 7,000-8,000 crore capital during the next four years to maintain a capital adequacy ratio of over 12 per cent, the SBI Chairman, Mr G.G. Vaidya, has said.

However, Mr Vaidya ruled out any immediate move to raise Tier-I equity capital and said that the bank would take the subordinated debt route (Tier-II) to meet its capital requirements.

As a corporate objective, the bank has decided to maintain its capital adequacy above the 12 per cent level. Mr Vaidya was speaking here on Wednesday at a conference on the forthcoming India Millennium Deposit (IMD) offering.

``We have room for around Rs 3,500-4,000 crore as subordinated debt,'' Mr Vaidya said. However, he refused to disclose the immediate plans on raising capital through this route, which he said would be decided by his successor. Mr Vaidya retires on Octobe r 31.

The bank's preference for the subordinated debt route is because it offers a cheaper and a comparatively hassle-free option compared to raising Tier-I capital.

Mr Vaidya said a fresh equity issue by the bank is ruled out at the prevailing low trend in the market price of the SBI stock. ``The bank will not like to come to the market when the price earning multiple of the stock is ruling at around six. We would l ike to offer fresh equity when the price earning multiple would be at around 15. We will then offer the share at a multiple of around 12,'' Mr Vaidya said.

He felt that the current bearish trend in the SBI stock (which is ruling around Rs 170) does not adequately reflect the initiatives being taken by the bank. He pointed out that the bank was on the way towards adopting the US GAAP (Generally Accepted Acco unting Principles), planning the merger of its associate banks and taking a plunge into the insurance business besides going in for a major plan for technology upgradation.

``We are seriously examining the merger of the seven associate banks. The small size of the individual banks may not be enough to enable them to meet the competition,'' Mr Vaidya said. However, he said that a final decision on the matter would be taken a fter ascertaining the views of the unions, the officers' association and the boards of the banks.

By the end of the present calender year, the bank expects to set up 500 ATMs across the country which would be integrated with its credit card business, besides entering into Internet banking through all its specialised branches.

He said the bank's VRS package would be finalised after completing the manpower planning exercise. The bank might also seek certain modifications in the guidelines issued by the IBA in this regard.

Lower rates ruled out

Mr Vaidya also said he does not foresee any downward trend in the interest rate structure in the near future.

``I do not see much scope for the interest rate structure to go down immediately. The gilts YTM has come a level where they should standardise,'' Mr Vaidya said while replying to a question on the likely impact of the investments to be made in Government securities out of the Indian Millennium Deposits (IMD).

The SBI would invest 40 per cent of the deposits raised through IMDs in Government securities. The five-year foreign currency denominated deposit would open for subscription on October 21, while the earliest closing date has been fixed at October 31.

The bank has targeted to raise $2 billion, while it has already got commitments for about $5 billion from the collecting banks, Mr Vaidya said. He, however, said the decision on the level of oversubscription to be retained would be decided at the time of the earliest closing date of October 31.

The SBI Chairman ruled out the possibility of the bank having any problems in meeting the redemption requirement at the end of the five-year period. ``A bank of our size does not have to worry on this front,'' he said.

Pic.: Mr. G. G. Vaidya (left), Chairman, State Bank of India, addressing a press conference held in connection with the forthcoming offer of the India Millennium Deposit in the Capital on Wednesday.

Picture by Kamal Narang