Government to invest $2.5 billion in State Bank of India

February 21st, 2008 - 6:28 pm ICT by admin  

New Delhi, Feb 21 (IANS) The State Bank of India (SBI), the country’s largest commercial bank, will get Rs.99.95 billion ($2.5 billion) from the government towards its rights issue that opened Feb 18, it was announced Thursday. The union cabinet of ministers decided to infuse the money by issuing special marketable government securities in order to help the bank increase its capital base.

A decision in principle had already been taken by the cabinet to infuse money in the bank, but the decision on the manner in which the money will be infused was taken Thursday, a government spokesperson told reporters here.

“The transaction will be completed within the current financial year. Thereafter a securities redemption fund will be created to redeem these securities on due date,” the spokesperson said after the cabinet meeting.

The bank’s rights issue of 105,259,776 equity shares with a face value of Rs.10 each and at a premium of Rs.1,580 per equity share opened Feb 18 to generate Rs.1,673.63 billion as additional capital.

The issue - at a premium 159 times the face value of its equity share - is on a rights basis in the ratio of one equity share for every five held on the record date fixed at Feb 4.

The government expects Rs.14.49 billion more by way of dividend from the bank in the next fiscal, as opposed to an expenditure of Rs.8.25 million as interest for the proposed securities.

In subsequent years, the dividend is expected to be higher - Rs.16.83 billion in 2009-10 and Rs.120.29 billion - due to the anticipated multiplier effect on the bank’s performance growth due to the increased capital base.

The shares of the commercial bank, however, were down 1 percent during intra-day trading Thursday at 2,183.55, and among the top five losers among the 30 shares of the sensitive index of the Bombay Stock Exchange (BSE).

A day earlier, the bank had announced a cut its prime lending rates by 25 basis points to 12.25 percent with effect from Feb. Last week, the state-run bank had reduced the rate by a similar level to 12.50 percent with effect from Feb 16.

The government holds 59.73 percent equity in SBI, while mutual funds, foreign institutional investors, domestic financial institutions and insurance companies hold 24.22 percent. The remaining is mainly with individuals and corporate houses.

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