SBI Announces Ambitious Rs 25,000 Crore Share Sale via QIP
State Bank of India (SBI), the largest public sector bank in the country, is on the verge of launching a significant capital raising initiative. The bank plans to secure up to Rs 25,000 crore through a Qualified Institutional Placement (QIP), marking its first equity offering since 2017. This move aims to bolster its common equity tier 1 (CET-1) capital, which currently stands at 11%, a figure noted by analysts as one of the lowest among public sector banks in India.
Approval and Record-Breaking Potential
On May 3, SBI’s board approved the QIP, which, if successful, would set a record for the largest QIP-based share sale in India. The bank’s decision comes as it seeks to enhance its CET-1 ratio, which is crucial for maintaining financial stability and supporting future growth. The QIP is considered a more efficient method for raising funds compared to traditional rights issues or follow-on public offerings, as it allows for bulk capital collection from institutional investors.
The selected merchant banks to facilitate this capital raising include prominent names such as Kotak Mahindra Capital Co, ICICI Securities Ltd, HSBC Securities and Capital Markets (India) Pvt Ltd, Citigroup Global Markets India Pvt Ltd, Morgan Stanley India Co Pvt Ltd, and SBI Capital Markets Ltd. Notably, these banks have agreed to charge a nominal fee of just Rs 1 for their services, emphasizing the prestige associated with managing funds for India’s largest bank.
Strategic Importance of the QIP
The strategic significance of this QIP cannot be overstated. Analysts indicate that SBI’s CET-1 ratio is currently the lowest among its public sector peers. Despite a robust return on equity (RoE) of 19%, which surpasses the 12% loan growth, the bank recognizes the need to strengthen its capital base. This capital infusion aims to cushion the CET-1 ratio and support the bank’s growth trajectory.
The competitive nature of the bidding process for this mandate reflects the prestige of working with SBI. Sources indicate that the aggressive bidding led to all participating banks aligning their fees to the Rs 1 level, showcasing the high stakes involved in this transaction. The last time SBI engaged in a similar QIP was in June 2017, when it successfully raised Rs 15,000 crore.
Market Outlook and Future Plans
SBI plans to approach the market in the coming months, with expectations that Life Insurance Corporation (LIC) will again play a significant role in the offering, similar to its previous participation where it acquired half of the shares issued. As of March 31, LIC holds a 9.38% stake in SBI, making it the second-largest shareholder after the central government, which owns 57.43%.
The timing and amount of the QIP will depend on prevailing market conditions. SBI’s shares recently closed at Rs 800 on the Bombay Stock Exchange, reflecting a 1% increase from the previous day’s closing price. Additionally, SBI is set to receive funds from its divestment of a 13.19% stake in Yes Bank to Japanese financial institution Sumitomo Mitsui Banking Corporation (SMBC), further enhancing its financial position.
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