The State Bank of India (SBI) on Thursday said it would soon seek government approval for its Rs 20,000-crore rights issue. The bank will give a revised proposal to the finance ministry this month.

“The draft proposal is with us. We are going to submit it this month to the ministry,” SBI Chairman Pratip Chaudhuri told reporters on Thursday. He added the bank hoped to raise the capital by December.

There has been a lot of uncertainty on the launch of the issue due to the government’s strained financial condition. The finance ministry is closely monitoring its expenditure, given the pressure on finances.

The government, which holds 59.4 per cent stake in the bank, will have to contribute up to Rs 12,000 crore to subscribe to the issue. This will be a substantial amount in the current situation.

SBI, however, is hopeful that the government would approve the proposed sale of equity share to institutional investors, and that the issue would come by the end of the third quarter or in the beginning of the fourth quarter this year.

The proposal to be sent to the government may have an option for a follow-on share sale. It may include an option to allow subscribers to pay in installments, so that the government can stagger its contribution. The capital is expected to meet SBI’s requirements for the next three years.

SBI’s Tier-I capital fell below eight per cent on account of provisioning towards staff pension and it needs to raise additional capital to support its growth plans. The regulatory requirement for Tier-I capital is a minimum six per cent, but the government wants public sector banks to maintain at least eight per cent.

If the rights issue does not happen, the bank has a back-up plan, since it has a head room to raise funds through perpetual bonds and Tier-II bonds. The bank, however, has denied reports of raising funds through qualified institutional placement, as that would bring down government holding. (BS)