State Bank of India on Monday fixed the price for its forthcoming rights issue at Rs. 1,590 per share (that is, face value of Rs. 10 each and a premium of Rs. 1,580 per share), to raise an aggregate amount of Rs. 16,736.31 crore.The ratio of the rights issue also fixed by the SBI board as one share for every five shares of the bank held by the shareholder. SBI has informed the Bombay Stock Exchange that the central board of the bank at its meeting held on January 14 has decided as under: To increase the issued capital of bank from Rs. 526.30 crore to Rs. 650 crore, in terms of Sec. 5 (2) of the SBI Act; and to raise an aggregate amount of Rs. 16,736.31 crore (including premium) by way of rights issue offer to the Central Government and to other eligible existing shareholders including GDR holders. The bank would also issue shares to employees under the Employees Stock Purchase Scheme in the same ratio and price.

Government to invest

The Union Government is expected to invest around Rs. 10,000 crore in the rights issue to maintain its stake at over 59 per cent, for which it would issue bonds to SBI.

“We have decided to subscribe to the rights issue. We intend to issue bonds of Rs. 10,000 crore for the purpose,” Finance Minister P Chidambaram had said after the Cabinet meeting, which approved the rights issue.

These bonds would be redeemed through the proposed Securities Redemption Fund, he said, adding that the SRF would be funded through taxes and dividends received from SBI.

The annual cost of servicing these bonds would come at around Rs. 790 crore, Mr. Chidambaram had said, adding the government is required to put at least this much amount to the redemption fund. “We are subscribing to the rights issue, but we will pay to it on deferred basis,” he had said.

“The bank has been exploring various options to mop up funds, but a rights issue would allow the bank to raise capital without diluting the government shareholding. It is understood that the government was not in favour of a follow-on public issue, where its stake would have been diluted from the current over 59 per cent to 55 per cent, the minimum prescribed under the SBI Act.

Earlier this fiscal, the government purchased 59.7 per cent stake of the RBI in SBI in a revenue-neutral exercise.

SBI is the largest bank in the country, but ranks only 70th globally in terms of capitalisation.

Source : Hindu

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