Financial Daily from THE HINDU group of publications
Friday, Mar 24, 2006
Money & Banking - Public Sector Banks
SBI Act changes okayed
Mumbai , March 23
The Union Cabinet on Thursday gave its nod for legislative changes that will enable State Bank of India (SBI) to sell shares in its associate banks.
The changes will also facilitate SBI to split the shares of its subsidiaries. However, this will require Parliament's approval.
SBI has seven associate banks of which only three State Bank of Travancore (SBT), State Bank of Mysore (SBM) and State Bank of Bikaner and Jaipur (SBB&J) are listed. These shares are of Rs 100 face value. At present, no individuals can hold more than 200 shares in the listed entities.
As on December 31, 2005, SBI holds 75 per cent stake in SBT, 92.3 per cent in SBM and 75 per cent in SBB&J. Other subsidiaries are: State Bank of Hyderabad, State Bank of Patiala, State Bank of Indore and State Bank of Saurashtra.
Mr A.K. Purwar, Chairman, said earlier this week that SBI can sell up to 49 per cent in the associate banks once the amendment to the Act is passed.
Stocks move up
The Government will now have to introduce a Bill in Parliament to amend the State Bank of India (Subsidiaries Banks) Act, which the Cabinet has approved today.
The shares of SBI's subsidiaries rose after the Cabinet approval. The State Bank of Mysore counter was locked at the upper circuit. The stock gained 20 per cent and closed at Rs 5481.40, a gain of Rs 913.55 from Wednesday's close.
SBT netted a 5 per cent gain. The stock appreciated by Rs 174 and closed at Rs 3,654. Stocks of SBB&J gained Rs 175.70 to register a 5 per cent gain from Wednesday's close. The stock closed at Rs 3690.55.
Shares of State Bank of India also rose on the back of this announcement. The stock gained Rs 26.10, an appreciation of 2.75 per cent, and closed at Rs 974.70. The stock touched an intra-day high of Rs 983.90.
The government decision is positive for both SBI and the subsidiaries, said Ms Sohini Andani, equity analyst with ASK-Raymond James. With the stock split, the shares of the subsidiaries will become more liquid as now institutions would be able to trade in these shares. "The subsidiaries' stocks will get better valuation," Ms Andani said.
For SBI, the positive factor is that it can reduce its stake in the subsidiaries and generate profit, which it can then use for its Tier-I capital. The parent will also not have to provide capital for its subsidiaries. This will give relief for capital adequacy. "Due to this one-time gain, SBI can make more money, unlock value for its stakeholders," she said.
The Union Cabinet has also approved the Banking Regulation Amendment Bill, which, among others things, seeks to remove the 10 per cent cap on voting rights in private banks. The Bill, which was introduced in the Lok Sabha, was referred to the Standing Committee of Parliament on Finance, which had recommended certain changes.
The Cabinet has also okayed amendment to this Bill which is seeking to modify the definition of "repo" and "reverse repo" as per the recommendation of the Standing Committee of Parliament.
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