State Bank of India May Need 1 Trillion Rupees
BLOOMBERG
By Sumit Sharma and Anoop Agrawal
June 28 (Bloomberg) -- State Bank of India, the nation's biggest by assets, said it may need 1 trillion rupees ($24.5 billion) in five years to sustain loan growth and fend off competition.
Mumbai-based State Bank wants the money to meet stricter capital requirements, fund the growth of its banking units and expand its assets 25 percent yearly, Chairman Om Prakash Bhatt told reporters in Mumbai. The bank is concerned about its loss of market share, he said.
The lender is waiting for government controls to ease, as a 20 percent cap on foreign ownership and a requirement that India hold a majority stake have limited its options to raise capital. ICICI Bank Ltd., India's biggest by market value, sold $5 billion of stock last week because overseas investors are allowed to own up to three-quarters of the company.
``State-run banks will always have this problem of fund raising because of government control,'' said Sandip Sabharwal, chief investment officer at Mumbai-based J.M. Financial Mutual Fund, who oversees the equivalent of $171 million in equities. ``Every time they decide to raise funds they will need approval.''
New laws being passed in the next two months will allow State Bank to raise as much as 80 billion rupees of capital once the government's stake falls to 55 percent from 59.73 percent, Bhatt said. The rules will permit other fund-raising options as well, such as issuing preferred shares.
Credit Risk
Since April the bank has sold 50 billion rupees of debt, Bhatt said. The perceived risk for holding debt of State Bank of India rose to a three-month high after Bhatt told shareholders on June 25 that its capital requirements would be increased to 500 billion rupees in three years.
Credit-default swaps based on $10 million of the company's debt rose to $52,000 from $51,000 yesterday, according to data compiled by Bloomberg. That's the highest since March 23. An increase in the price indicates deterioration in investors' perceptions of the bank's ability to repay what it owes.
Indian banks need more capital to fund the building of roads, ports and power plants in an $854 billion economy that grew an average 8.6 percent over the past four years. The International Monetary Fund expects India to overtake South Korea this year as Asia's third-biggest economy after Japan and China.
Share Sale
Government-owned State Bank, with more than 100 million customers and 9,400 branches across India, may sell as much as $1.5 billion of stock this year, Bhatt said in May. The bank sold shares in 1994 in India and in 1996 in London, where it raised $350 million.
``Banks will need more money as the Indian economy is growing at a fantastic pace,'' Bhatt said.
State Bank's assets are expected to grow by 25 percent annually over the next three years, Bhatt said today, after growing 70 percent to $156 billion in the five years through March 31. ICICI forecasts 30 percent growth this year and had a three-fold increase in assets to $62 billion over the five years.
The 200-year-old bank also plans to combine its asset management, insurance and non-banking operations in a holding company to unlock value, Bhatt said on June 25. State Bank of India proposes to sell about a 10 percent stake in its holding company to `three to four investors' within four months or so, he said today.
Life Insurance Unit
State Bank values its life insurance unit at $7 billion, Bhatt said. SBI Life Insurance is the fastest-growing life insurer in India, he said, and may go public in the year ending March 2009. French lender BNP Paribas's Cardiff SA unit holds a 26 percent stake in State Bank's life insurance venture.
The bank also aims this year to increase the share of low- cost deposits by 1 percentage point to 44.5 percent, attract more rich customers and expand in rural areas.
The bank needs to boost its market share, Bhatt said. Training programs are planned for all 200,000 employees to improve service, he said, after its product innovation and service standards declined.
State Bank of India's shares, which have risen 18 percent this year, traded at 1,470.35 rupees, up 1.6 percent, at 3:30 p.m. on the Bombay Stock Exchange.