State Bank of India (SBI) is gearing up for a colossal share sale. The nation’s largest lender picked six top investment banks. They will manage its planned $3 billion equity offering. This fundraising ranks among India’s biggest ever.
Sources familiar confirmed the appointments late Wednesday. Chosen banks include Citigroup and HSBC’s India units. Furthermore, ICICI Securities, Kotak Capital, and Morgan Stanley join the team. Finally, SBI’s own investment arm, SBI Capital, completes the roster. The formal mandates are imminent. The share sale process should start by late July.
Symbolic Fee
The selected banks proposed managing this huge deal for just Rs. 1. Sources revealed this unique fee structure. Essentially, they prioritised winning the prestigious mandate over immediate profit. This strategy targets valuable league table recognition.
Historically, banks sometimes accepted minimal fees for landmark deals. Particularly during the early 2000s boom, this occurred frequently. Winning SBI’s business offers immense prestige.
Moreover, it promises future lucrative opportunities. Following this, the nominal fee makes strategic sense long-term. SBI invited pitches earlier this month. The formal selection process concluded swiftly.
Market Conditions
SBI’s board greenlit this massive Rs. 25,000 crore ($3 billion) raise last month. This crucial approval followed a seven-year fundraising pause. Currently, Indian bank stocks trade near record highs. Therefore, lenders see prime conditions for raising capital. They aim to secure funds at attractive valuations now.
Other banks already moved quickly this year. At least four state-run peers raised $720 million collectively. Additionally, private banks like Axis Bank and IDFC First Bank plan similar moves.
Market activity notably surged starting in May. As a result, numerous bulk deals occurred across exchanges. SBI itself last tapped the market via QIP in 2017-18. It secured Rs. 15,000 crore then.
Capital Needs
Despite adequate buffers, SBI seeks fresh equity capital. Its capital adequacy ratio stood at 14.25% on March 31st. This exceeded the mandatory 12.1% requirement comfortably. However, it trails key competitors significantly. For instance, HDFC Bank reported a robust 19.6% ratio. Similarly, Bank of Baroda held 17.19%.
Fresh funds will boost SBI’s growth capacity. India’s banking giant dominates the market. It commands 22.6% of domestic deposits nationally. Furthermore, it holds a 19.72% share in total loans.
Recently, SBI reported a quarterly profit of Rs. 18,643 crore. This reflected a 10% dip year-on-year due to increased provisions. Ultimately, SBI’s market value towers at Rs. 7.13 trillion. This leads all listed public-sector banks decisively. The upcoming share sale will solidify its financial foundation.
Written By Fazal Ul Vahab C H
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