State Bank of India to get Rs 7900 crore from govt

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State Bank of India to get Rs 7900 crore from govt

State Bank Of India, the country's top lender, said it will receive about Rs 7900 crore (USD 1.6 billion) from the government through a preferential allotment of shares.

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State Bank of India , the country's top lender, said it will receive about Rs 7900 crore (USD 1.6 billion) from the government through a preferential allotment of shares.

Ratings agency Moody's downgraded SBI's standalone rating in October, citing inadequate capital and declining asset quality, putting pressure on the government to inject money into the bank.

SBI had said it needed at least Rs 8000 crore before March to maintain tier-I capital adequacy ratio of 8%-- a level the government had pledged to maintain in state banks.

The government's stake in SBI will rise to about 66% from 59% with injection of new capital, said a banking analyst at Mumbai-based brokerage who did not want to be identified as he was not authorised to speak to the media.

Rising interest rates and slowing economic growth are eroding the asset quality of India's banks, especially state lenders, which account for 70% of all loans.

Net non-performing assets at SBI, which holds about a quarter of Indian bank loans and deposits, rose to 2.04% of assets at the end of September from 1.7% a year earlier.

"Fundraising was a major overhang for SBI shares. So now if the money comes, it will really be a positive for the bank," said the banking analyst, who expects a 100 basis improvement in the Tier-I ratio of SBI after the fund infusion.

In October, SBI had a Tier-1 capital adequacy ratio of 7.6%.

The bank had earlier planned a USD 4.5 billion rights issue to boost its capital but this was scrapped last year due to poor market conditions.

Shares of SBI, which has a market capitalisation of USD 26.2 billion, are down nearly 28% over the past 12 months, underperforming the National Stock Exchange's banking index, which has dropped about 9%.

Of the 42 analysts tracking SBI, 26 have a 'buy' or a 'strong buy' rating on its shares. Eight rate the stock a 'sell' or a 'strong sell' while the same number rate it a 'hold', according to Thomson Reuters' Starmine.

SBI shares have the cheapest valuations among large Indian lenders, trading at 1.4 times book value. This compares with 1.9 times for the No. 2 lender ICICI Bank and 4.4 times for HDFC Bank.

SBI is due to report December quarter results next month but has not announced a date.