SBI moots FPO, rights, QIP cocktail if government pares stake

State Bank of India (SBI) will go for a combination of a follow-on public offer (FPO) of shares, a rights issue and a qualified institutional placement if the government decides to bring down its holding in the bank from the current 59%, chairman Pratip Chaudhuri said on Thursday.

“We need `20,000 crore for the bank for the next three years and we are going to the government with several options. The options have been worked out considering the level of holding the government would be comfortable with. If it wants to maintain the current 59%, we have suggested rights issue. If it is open to bringing it down to 55%, we have suggested a combination of rights issue, a follow-on offer and placement with institutional investors,” he said.

“We have to discuss with the government and according to their preference and appetite, we have to sequence the fundraising,” Chaudhuri said, adding that the finance minister is scheduled to address the bank’s board on August 6.

The bank had taken `7,500 crore from Tier I capital to fund its pension liability in January-March, bringing down its capital adequacy ratio for Tier I from 9% to 7.72%.

Part of it would be made up through profit generation during 2011-12 and part through fund infusion during the proposed rights issue, said Chaudhuri.

According to him, the country’s largest lender would return to posting normal profits from third quarter after taking care of the higher provisioning required by the Reserve Bank of India.

“Normal profit can be expected maybe in third quarter. Some more of provisioning for the provision coverage ratio is still there, which is about `500 crore per quarter during the first and the third quarter,” he said.

In May, SBI spooked the financial markets with a 99% drop in fourth quarter profit to `20.88 crore on higher provisioning for non-performing assets, provisioning for teaser home loans and tax.

Higher margins may, however, compensate for higher provisioning to be done during the first two quarters, the chairman said. “In first quarter, margins are looking much better. NIM (net interest margin) has been 3.6%, higher than our guidance of 3.5%, and far higher than 3.15% during previous year’s corresponding period. If we continue to see higher margins, then, despite other pressures, there could be a possibility that the profits are good,” he said.

On credit growth, Chaudhuri said the first quarter is typically a slow one. “It grows mainly on the back of Food Corp of India’s procurement, whose drawings have increased by `4,000 crore during the quarter.”

SBI, along with the Indian Banks’ Association would soon be approaching the government with a proposal to allow banks to come up with infrastructure bonds. “If you are allowing other institutions, banks should also be allowed,” said Chaudhuri.

The bank has also requested the government to provide guarantees to educational loans similar to undertakings given partly to SMEs and exporters. A government guarantee for loans would free up capital needed to provide for such loans, the chairman said. “The total educational loan portfolio is `43,000 crore. On it assuming a capital requirement of 10%, the banks need to set aside `4300 crore. Now if the full loan is guaranteed by the government, the requirement of capital drops to `800 crore. If not 100% then some lesser percentages can also considered. The government is looking at this.”