The Reserve Bank of India is not in favour of the government subscribing to State Bank of India's [Get Quote] rights issue through bonds on grounds that it does not conform to good corporate governance.

The rights issue to raise Rs 16,736 crore is likely to open for subscription from February 18, a finance ministry official said today. In terms of size, this is reported to be second to ICICI Bank's [Get Quote] follow-on public issue of Rs 20,000 crore.

Banking sources said the government should not use the bond route when ordinary shareholders are expected to pay in cash to subscribe to the issue.

The central bank raised this issue when the finance ministry approached it to grant the bonds Statutory Liquidity Ratio status. An SLR bond qualifies for the portfolio maintained by banks to meet the statutory liquidity requirement.

SLR is the percentage of total deposits banks have to maintain in the form of cash, gold or approved securities.

At present, the minimum SLR is 25 per cent.

Sources close to the developments other bonds such as bank recapitalisation bonds carry SLR status because they are meant to resurrect weak banks.

Moreover, SLR status for Rs 10,000-crore bonds (this is the amount to which the government, which holds 59.73 per cent, needs to subscribe) will interfere with the government's borrowing programme.

Government bonds issued by RBI to meet the borrowing programmes carry SLR status, which roughly specifies its sovereign status. If the SBI bonds also carry SLR status, extra provision has to be made for the total borrowing programme.

Sources said SBI may be required to give an undertaking that these bonds will be held till maturity and will not be offloaded in the secondary market in order to avoid confusion over the government's borrowing programme.