Government clears State Bank's Rs10,000 crore rights issue

Mumbai: The government on Friday gave a much awaited nod to the nation''s leading lending institution State Bank of India (SBI) to
enhance equity by Rs 10,000 crore, a move that would help the bank meet its capital requirement.

The government would subscribe to the rights issue of equity shares through issue of marketable securities and statutory liquidity ratio, minister of information and broadcasting P R Dasmunsi announced the decision at the cabinet meeting last night.

The government will invest Rs10,000 crore ($2.5 billion) in the rights issue of State Bank of India, to boost the performance, valuation and rating of the country''s biggest bank, an official statement said.

The government owns 60 per cent of SBI, which has a valuation in excess of Rs120,000 crore ($30 million). The rights issue is expected to raise over Rs16,000 crore ($4.2 billion), sources said.

The rights issue would be completed in the fiscal year ending March 2008.

The government, would buy shares by issuing securities although it had not finalised the number of shares to be subscribed, the coupon or the tenure of the instruments, the statement said.

The government would get dividend and taxes amounting to Rs1,358 crore from the bank in 2008-09 against an estimated expenditure of Rs790 crore as interest to be paid to the bank, the statement said.

The government would receive Rs1,552 crore the next year and in 2010-11 it would receive Rs1,892 crore, it said.

State Bank of India shares jumped nearly 4 per cent after the cabinet approved a rights issue. The shares later pared gains to two per cent at Rs2,315.50