INDIA BUSINESS WORLD - FEBRUARY 16^th - FEBRUARY 29^th - 2008

GOVT APPROVES SECURITIES FOR SBI RIGHTS ISSUE

The Cabinet has approved a proposal to issue special marketable securities worth Rs 9,995.99 crore to subscribe to the rights issue of State Bank of India (SBI). The transaction will be completed in the current financial year. Further, a securities redemption fund will be created to redeem the securities on due date. It also gave its approval to modify an earlier decision to give statutory liquidity ratio (SLR) status to the bonds. The government is likely to receive around Rs 1,449 crore additionally by way of dividend and taxes from the bank during the year 2008-09 as against an expenditure of around Rs 825 crore as interest to be paid to the bank for the proposed securities.

In the subsequent years, the government is likely to receive higher amount of additional revenue (Rs 1,683 crore in the year 2009-’10 and Rs 12,049 crore in 2010-’11 and thereafter).

As a part of the capital infusion plan for SBI, the government that holds 59% in SBI will subscribe to an equivalent amount of shares in the rights issue on March 18. The bank needs to raise resources to comply with 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).

Earlier the government had planned to give these securities SLR status but it will now issue special marketable bonds. SBI would have used these bonds to meet its Statutory Liquidity Ratio which is 25% of total deposits. SLR is the amount a bank has to maintain in cash, gold or government securities.