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State Bank of India (SBI) may float a holding company to facilitate funding of capital required by its subsidiaries.
India’s largest bank currently has five domestic banking and 11 non-banking subsidiaries. Some of the non-banking subsidiaries, in turn, have their own subsidiaries.
With SBI alone needing huge amount of capital, estimated at about ₹2.30 lakh crore up to March 2019, to meet the requirements under the Basel III capital adequacy framework, it may be looking at the option of forming a holding company to fund the subsidiaries.
The Basel III capital adequacy framework aims to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source.
Without losing controlA senior bank official said the holding company could be floated as SBI’s subsidiary. The company will hold the bank’s shareholding in its 16 subsidiaries.
The bank, without losing controlling stake, can then dilute a small stake in the holding company from time to time to fund the subsidiaries.
The plan to float a holding company comes even as SBI has put off the merger of its banking subsidiaries (also known as Associate Banks) with itself for the time being.
State Bank of India kicked-off the merger exercise in 2008 to reap the benefits arising from economies of scale in terms of footprint, manpower and other resources. State Bank of Saurashtra was then merged with its parent, SBI. In 2010, another Associate Bank, State Bank of Indore was merged.
In FY2014, subsidiaries collectively boosted SBI’s consolidated bottomline by ₹3,283 crore (₹3,811 crore in FY2013) to ₹14,174 crore (₹17,916 crore).
The bank has five domestic banking subsidiaries – State Bank of Bikaner & Jaipur (SBI’s shareholding: 75.07 per cent); State Bank of Hyderabad (100 per cent); State Bank of Mysore (90 per cent); State Bank of Patiala (100 per cent); and State Bank of Travancore (75 per cent).
SBI’s prominent non-banking subsidiaries include SBI Capital Markets; SBI Cards & Payment Services; SBI Mutual Fund Trustee Company; SBI Life Insurance Company; and SBI General Insurance Company.
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