India's Sbi To Receive Capital Infusion Of Up To Us$1.59bln

State Bank of India (SBI, BSE:500112) has said the government has approved a capital infusion of Rs 6,000-8,000 crore (US$1.19-$1.59 billion) in the bank by March 31, a step that would help the lender to enhance its business.

"The Finance Ministry has approved long back. Even the Planning Commission approval is in place. So it (capital infusion) should be between Rs 6,000 crore and Rs 8,000 crore. It should be done before March 31," SBI Chairman Pratip Chaudhuri told reporters here. It would be preferential capital. With the capital infusion, the government stake would go up to 64 per cent, he said. The capital infusion will raise the tier I capital to beyond 8 per cent and would be sufficient to sustain business growth till March 2013. "Through the present capital infusion it would be quite adequate for March 2013 at least," he said.

The government has already announced that it is committed to providing adequate capital to public sector banks so as to maintain their tier-I capital at 8 per cent.

As of September, 2011, the capital adequacy ratio (CAR) of SBI stood at 11.4 per cent. Of this, tier-I capital stood at 7.47 per cent at the end of second quarter against the minimum 8 per cent level desired by the government.

The government of India, which holds a 59.4 per cent stake in SBI, has earmarked the infusion amount with a view to ensure the bank meets regulatory requirements.

SBI had raised over Rs 16,000 crore through a rights issue in 2008. In the last SBI rights issue, the government contribution was in the form of bonds to the bank instead of cash.

In 2010-11, the government provided capital support to the tune of Rs 20,157 crore to public sector banks. Chaudhuri, meanwhile, said chances of the RBI going for a rate cut in the immediate future are unlikely.

"I don't see moderation in interest rates may be policy rate may undergo a change which according to me is less," he said.

"Unless deposit rates come down. Now deposit rate cannot come down because government savings rate is at 8.6 per cent," he said, "if banks lowers deposit rate below that all the deposit will fly away. So we need to keep deposit rate at a raised level where there is incentive for savers."