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Monday, June 06, 2005

SBI gets a birthday gift (Economic Times)

SBI gets a birthday gift (Economic Times)  TIMES NEWS NETWORK[ SUNDAY,
JUNE 05, 2005 12:30:38 AM] MUMBAI: As a gift on State Bank of
India�s 200th birthday, the government will review the �restrictions�
that hold back the country�s largest bank from raising money in the
capital market. Given the scale of capital required by SBI, the
government appears to be set to clear higher foreign shareholding in the
bank. Speaking at a function to mark the beginning of the bank�s
bicentennial celebrations finance minister P Chidambaram said that SBI
must expand globally to take India to the rest of the world. �I look
forward to seeing the SBI logo in every capital of every country,� said
Chidambaram At present, the Reserve Bank of India holds 59.73% in
SBI. The bank has headroom to issue further equity only until RBI�s
holding is down to 55%, which is the minimum prescribed under law.
Besides, the bank cannot raise capital overseas because it has a
foreign shareholding limit of 20% which has already been reached with
GDR holders accounting for 7.88% stake and foreign institutional
investors accounting for 11.9% stakes. However, if the government
raises the 20% limit for SBI in the next few months, there is a distinct
possibility that the foreign holding cap for nationalised banks, also at
20% will be reviewed. It is not clear at this stage whether the
government will also make it easier for the seven associate banks of SBI
to raise equity. At present the face value of shares of the associate
banks is Rs 100, and there is a restriction that no investor can hold
more 200 shares. Chances are that these restrictions would also be
re-examined. The finance minister said that SBI�s presence abroad
was also required to finance global trade, which was the engine of
growth and the opportunity for Indian companies to turn into
multinationals. �The initiative to expand into rural India and into
the world will require capital,� he said, adding that the government
will �re-examine all the current policies and restrictions� that come in
the way of SBI�s raising capital. Earlier speaking about the banking
sector, P Chidambaram said that banks would require capital to meet with
new capital adequacy requirement and provide credit required to fuel an
8% growth rate. The finance minister said that banks must also begin
to re-look at their concept as banks. �Banks cannot only sell banking
products. They have to start selling other products such as insurance,�
he said. Speaking at the function, Chidambaram set out an 8%
targeted growth rate for the economy. �The Indian economy can grow at
the rate of 5% even if there is no government. It can grow at 6% if
there are good monsoons and at 7% if there is a reasonable government
that does not interfere. It can grow at 8% if there is a proactive
government. That is the kind of government we want to offer,� said
Chidambaram. He added that an 8% rate of growth would require a huge
expansion in credit for which the banking sector will have to raise
capital.

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