SBI plans Rs 50,000 cr expansion

Country's largest lender SBI on Tuesday said it is likely to raise Rs 50,000 crore (Rs 500 billion) capital for its expansion plans in domestic and overseas markets in the next three years and proposed to form a holding company for its non-bank subsidiaries.

"In the next three years roughly Rs 50,000 crore (Rs 500 billion) of capital may be needed by SBI in addition to normal plough back of profits to meet our challenging business growth and expanding role overseas," State Bank of India chairman O P Bhatt told the Annual General Meeting in Mumbai.

SBI is also planning to float a subsidiary to manage pension funds under the new pension scheme for government employees, he said. To achieve better financial planning and reduce the demand on SBI for capital infusion in some of its subsidiaries, Bhatt said, "we are considering setting up a holding company for our non-banking subsidiaries."

To begin with, the bank's shareholdings in the asset management and insurance companies would form the holding company. The holding company can be listed separately and capital raised for the use of the two companies, he said adding "this will enable the bank to capture the value that was available in these businesses."

The bank has been shortlisted by PFRDA as one of the four players, he said adding pension funds offered a huge business opportunity as only 11 per cent of the current workforce of 45 million is covered by employment benefits. In some countries pension funds assets are as large as 65 per cent of GDP.

Bhatt said the need for capital was a crucial challenge facing the Indian banks today. There are number of factors that would lead to additional capital requirements -continuing strong credit growth, migration to Basel II framework, consolidation in the domestic banking industry as well as acquisitions overseas.

Also, there would be a growing need for Tier I capital, which was important for international valuation of banks, he said emphasising that the banking system being dominated by public sector banks will face a constraint in issuing equity to the public. This is because the minimum government shareholding cannot be relaxed or the government cannot take up its prorata share in future offerings, he said.

Bhatt said SBI's capital adequacy ratio, at 12.34 per cent as of March, was well above the nine per cent mandated by the Reserve Bank and the 11 per cent target set by the board. Of the 12.34 per cent, 8.01 per cent was Tier I capital, which was in line with the best international practice.

The bank also raised subordinated debt Tier II of Rs 9,442 crore (Rs 94.42 billion) in addition to USD 400 million overseas by way of innovative perpetual debt instruments, which qualifies for Tier I capital.

The bank in FY'07 registered strong business growth with a 28 per cent increase in lending and a balance-sheet size crossing Rs 550,000 crore (Rs 5500 billion). The net interest margin went up to 3.31 per cent from 2.92 per cent, excluding one-off items. The yield on advances rose from 7.78 per cent to 8.67 per cent.

The gross and net non performing assets declined during the year from 3.61 per cent to 2.92 per cent and from 1.88 per cent to 1.56 per cent, respectively. Despite rising deposit rates, the cost of deposits increased only marginally from 4.77 per cent to 4.79 per cent.

The bank has a global footprint in 32 countries with 84 offices.