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November 19, 1999


SBI to raise over Rs 35 bn from market in 2000

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State Bank of India will raise between Rs 35 billion and Rs 40 billion from the capital market in July or August 2000, bringing down the government holding to as low as40 per cent and becoming a full-fledged private sector bank.

Launching the SBI Gold Deposit Scheme in New Delhi, bank chairman G G Vaidya said he would need additional capital in any case -- whether the Reserve Bank of India, the majority stakeholder, subscribes to its rights or not. While Vaidya did not indicate what the RBI's response would be to the public issue, all indications from the government and banking sources suggest that the country's largest bank would be privatised within a year.

Vaidya said he would formally approach the RBI in December to ascertain the central bank's response to the SBI's proposal.

The central bank has close to 60 per cent holding in SBI and Parliament would need to change the State Bank of India Act before the bank is privatised. The Act stipulates a mandatory government holding of not less than 55 per cent and maximum foreign holding of 20 per cent. Vaidya had said last week that he would seek the cap for foreign holding to go up to 30 per cent.

Vaidya said if required the SBI may offer the voluntary retirement scheme to the employees to cut the staff cost. The VRS would not necessarily depend on the privatisation move. ''We may do it before or after the privatisation,'' he said.

The public issue could be in the form of a rights offer, American Depository Receipts or Global Depository Receipts. ''The final details will be worked out only after presentation of the balance sheet in March 2000,'' the bank chief said.

The government has made its stand clear on the issue of capitalisation of banks. Most of the banks need to raise additional capital for meeting their RBI-stipulated capital adequacy ratio of nine per cent by March 2000. The funds, have to either come from the government (the owners) or the capital market.

Banking Secretary Devi Dayal had clearly said recently that the government would amend various banking laws to ensure privatisation.

Gold Deposit Scheme launched

The scheme aims at flushing out privately held stocks of the metal.

Gold can be deposited in return for interest-bearing certificates. The SBI expects to collect 100 tonnes of gold in the first 12 months.

"In the first 12 months, we expect to get 100 tonnes of gold. Already we have received enquiries, offers from investors wanting to deposit 100 kg of gold in Delhi alone, and most of this is from individuals," Vaidya said.

The SBI would form a joint venture for assaying gold in India, he said. Assaying is crucial to help assess the quality of gold.

SBI would have a 51 per cent stake in the joint venture -- SBI Gold and Precious Metals Private Limited -- with 26 per cent being held by Credit Suisse Financial Products. The balance would be held by three state-run banks -- Allahabad Bank, Canara Bank and Corporation Bank

"If we collect 100 tonnes, to that extent imports will come down and that represents a savings of about Rs 50 billion," Vaidya said. "The scheme offers excellent value for investors."

"It offers great liquidity, investors can take a loan up to 75 per cent of the deposit and the deposit can be redeemed either in gold or in cash on maturity," he said.

Vaidya said the minimum deposit was 200 grams of gold and premature encashment of the deposit would be allowed after an initial lock-in period of one year.

The certificates issued against the gold deposit were transferable, which offered the prospect of a secondary market.

Vaidya said the bank would offer interest ranging from three per cent per annum for a three-year deposit to four per cent for a seven-year term.

The scheme was announced in the 1999/2000 (April-March) Budget in February. The intention is to use a part of the huge quantities of gold in India to reduce the economy's dependence on gold imports. Estimates put India's privately held gold at Rs 6,000 billion.

According to the industry-funded World Gold Council, India is the world's largest gold consumer and meets almost all its requirements from imports. India officially imported 614 tonnes worth $5.8 billion in calendar 1998.



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