State Bank of India (SBI), the country’s biggest bank, plans to raise at least $2.5 billion (Rs 10,000 crore) in a share sale before the end of the year.
MUMBAI: State Bank of India (SBI), the country’s biggest bank, plans to raise at least $2.5 billion (Rs 10,000 crore) in a share sale before the end of the year, chairman O P Bhatt said on Wednesday.
“We are looking to raise money but have not decided on whether it would be a public or private offering. But it will be Tier I capital,” Bhatt said at the global banking conference here.
Meanwhile, according to a Reuters report, SBI has raised Rs 3,500 crore through an issue of Upper Tier II bonds, more than double the Rs 1,500 crore it was looking to raise. The bond’s maturity is 15 years, with a call option at the end of the 10th year. The coupon will be 10.10%, payable annually.
The bank is aiming for a 25% growth in loans this year (2007-08), lower than the 27.95% increase recorded last year, Bhatt said. “We have seen some softening in demand but are now seeing a pick up in credit — we hope this will continue”, he said.
Credit growth has softened year-on-year because of interest rate rates by the Reserve Bank of India. The central bank has been hiking interest rates since the last two years, resulting in a slowdown in credit growth to 23% from over 30% last year.
Bhatt also cautioned against the risks of rising NPAs (non performing assets) in the banking sector. “With the economy growing at 9% and credit growth at 30% for the last four years, there may be risks of NPAs. In some banks NPAs may go up in absolute terms. It may depend on how proactive they are”, he said.
Reiterating his support for consolidation in the banking sector, Bhatt said “consolidation is a must — it needs to happen for banks to survive”.
SBI is also undergoing a transition with the recent announcement that one of its associates—-State Bank of Saurashtra—-is likely to be merged with itself.
Bhatt said the success of the ongoing merger will decide on how SBI proceeds on merging the other six associates. “We have not set a timeframe (for the mergers of other associates but we would like to learn from this (SBS merger) before going for future consolidation,” Bhatt said.
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