Monday, March 8, 2010

Bill to amend SBI Act introduced in Lok Sabha

Bill to amend SBI Act introduced in Lok Sabha

Yesterday finance ministry introduced the bill to further amend the State Bank of India Act, 1955. The key amendments which are very positive for SBI are

n    Reducing minimum government stake required, from 55% to 51% - very positive as SBI can raise upto Rs35-40bn without having to worry about the government equity

n    Allowing SBI to issue preference shares – SBI can raise upto Rs120-130bn without equity dilution

n    Allowing SBI to issue bonus shares

We believe that the amendments were known to the market and should have been discounted in price. However, we see a larger picture here in terms of intent of the government to now push in reforms and that too quite expeditiously. Over last fifteen days we have seen flurry of activities on government side which includes: (1) raising prices of fuels, (2) raising the coal prices for Coal India, (3) induction of Women's Reservation BILL and (4) roll back of exice duties etc. The government has introduced these despite strong resistance from its own allies. This, we believe is very positive for market, fiscal consolidation and India's global credit rating.

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