SBI to raise Rs 1,500 cr by bond issue

With the government dragging its heels on finalizing SBI's fund raising plans, the country's largest public sector bank is in urgent need of cash.

State Bank of India will raise about Rs 1,500 crore through a bond issue this week. The issue will be part of SBI's Tier II capital and the size of core issue likely to be set at Rs 1,000 crore with over subscription option of Rs 500 crore.

The issue comes just days after the Finance Ministry indicated that SBI's proposed follow on public issue may not be completed in the current financial year.

SBI Chairman OP Bhatt has been hoping the government would reduce its stake to 55 per cent allowing the bank to raise enough funds for the next few years. But with the FPO delayed SBI is looking for other options.

The capital requirements for FY08 alone are pegged at Rs 15,000 crore and one-tenth of this is being raised through the bond issue. The remaining is likely to be met through a rights issue and SBI may also get some budgetary support from the government.

While Finance Ministry is still to take a final call on SBI's fund raising plans but officials seem keen to wait a while until SBI can get a better valuation in the markets.

However experts say that in the meanwhile SBI will have to find ways to raise enough capital if it hopes to compete effectively against private sector rivals.