'SBI CAN GO FOR FOLLOW-ON PUBLIC OFFER'

While SBI is on its way to raise capital from its existing shareholders through a rights issue, the government is of the view that the bank could go in for a follow-on public offer in due course, if it requires capital in future. “The bank can always go ahead with the follow-on offer once the rights issue is completed. This will also enable it to dilute a larger number of shares at a later stage,” a source in the government said.Sections of the finance ministry were of the view that the bank should go in for a follow-on-public issue as opposed to the rights issue keeping in mind the fiscal burden of the government. However, the government was not keen on SBI diluting its stake at this stage.SBI has said it would raise Rs 16,700 crore in rights issue that will double its capital base to help support a 25% growth in deposits and advances. The government will infuse Rs 10,000 crore to keep its holding in the bank at 59.73%. Retail investors hold 5.96% in the bank.The bank needs to raise resources to comply with an additional capital requirements under Basel II norms, which are guidelines to banks for measuring risk. The funds are also being raised for additional provisioning required under the revised accounting norms for employees’ retirement benefits known as accounting standard-15 (AS-15).Last month, the board of SBI approved a 1:5 ratio — one share for every five shares held. The bank will issue 631.4 million shares after the rights issue. The bank has also decided to issue shares to its 2 lakh employees under an employees stock purchase scheme.The bank has priced its rights share offer at Rs 1,590 per share (face value Rs 10 each and premium of Rs 1,580). The rights issue has been offered at a 35% discount to the market price. The record date for the rights issue closed on Monday.DSP Merrill Lynch, Kotak Mahindra Capital, Deutsche Bank, Citibank and CLSA Securities are merchant bankers to the issue. SBI Caps is an advisor to the issue – www.economictimes.com