Cabinet clears bill to reduce RBI stake in SBI

The union cabinet has approved the cleared SBI (Amendment) Bill that proposes lowering the floor for the Reserve Bank of India's stake in the country's largest commercial bank from 55 per cent to 51 per cent. The RBI now holds a 59.73 per cent stake in SBI.

The lowering of the floor for the RBI stake will clear the path for a public issue of equity shares by SBI. "The SBI (Amendment) Bill will enable the bank to attract a large number of small individual investors," a government statement said.

The bill also proposes to allow the bank raise Rs 5,000 crore of capital through issue of preference shares. This will help the bank meet growth capital needs and prepare itself for implementing the Basel II capital adequacy norms.

The bank's capital adequacy at the end of June 2006 stood at 11.97 per cent, against the minimum requirement of nine per cent. The implementation of Basel II norms is estimated to reduce the capital adequacy of banks by about two percentage points.

The proposed amendment also provides for doubling the number of managing directors at SBI to four from the current two. With this, the number of whole-time directors on the board of SBI will go up to five.

The Bill will be placed before the floor of Parliament at its next session.

The SBI stock closed 1.33 per cent up at Rs 874.10 on the Bombay Stock Exchange.