The country’s largest bank, State Bank of India is looking at floating a holding company in line with the proposal by private bank ICICI Bank, the second-largest player after SBI. This was indicated by the SBI chairman, OP Bhatt speaking to analysts on Saturday evening.
Responding to a query from an analyst, SBI chief said, “We are engaged in an internal exercise within SBI on how to unlock the value in our subsidiaries,†Mr Bhatt said that SBI is debating on “whether we can have one NBFC and put all our subsidiaries in it or whether we can have two NBFCs  wherein one has SBI Life and SBI Mutual Fund and the other NBFC has all the other subsidiaries in it.†Mr Bhatt’s reasoning for a single NBFC for life and mutual fund business was that both companies are likely to have a common customer base. SBI owns a range of financial companies such as factoring, mutual fund, investment banking, stock broking, trading in government securities and insurance.
Recently, ICICI Bank announced plans to spin off its equity stake in life and general insurance and mutual fund business into a separate company, which will be called ICICI Holdings.
SBI officials told ET that the new company would raise fresh capital from the capital market to fund its highly-capital intensive business such as insurance. Bharti Rao, deputy managing director of SBI who is in charge of this project told analyst that the move would help both SBI and the subsidiaries. She indicated that unlocking the value of SBI stake in companies like insurance would help in funding its growth which regularly required capital.
SBI Life is a joint venture between SBI and French insurance company Cardiff SA, and is the only private sector insurance company to show profits. It had posted a profit of Rs 3.83 crore and has a market share of 12%. While SBI Funds Management is joint venture between SBI and French bank Society Generale and it ranks seventh in the Indian mutual fund industry.
ICICI Bank has infused Rs 2,060 crore in its life insurance business alone in the last six years. SBI, on the other hand, has invested about Rs 600 crore in the same business. Mr Bhatt indicated that it would take about three-four months for the bank to finalise its view on this issue. At present, SBI is working on ways to raise capital to sustain its growth given some constrains it faces due to the ownership structure. SBI’s majority shareholder, the Reserve Bank of India has 59% stake, which will soon be transferred to the government. As per the present legal framework, government holding cannot fall below 51% to retain government ownership in SBI. The bank plan to dilute government holding to 55% and raise Rs 15,000 crore in the form of debt and equity to sustain its growth. Pumping in fresh capital in a highly-capital intensive business like insurance will emerge as a challenge in months to come, given that SBI will require capital for its own growth. Thus, it is debating a holding company structure which will be a vehicle to raise fresh capital, felt banking analyst. Source: Economic Times
