India asks legislators to trim State Bank stake

Selling 8.41% of its stake in lender aimed to generate $2.5bln needed for its growth.

India is seeking legislative approval to sell down its stake in top lender State Bank of India to 51 percent, which could raise about $2.5 billion, a quarter of what the bank needs to grow over the next five years.

On Monday, Finance Minister Pranab Mukherjee introduced a bill in the lower house of parliament seeking approval for cutting the government's stake in SBI, and for the bank to raise capital by issuing shares or through a rights issue.

"This is an operational matter to see that SBI does not face capital constraints as the economy grows over 8 percent, resulting in lending growth rates rising at 25 percent or above," Ananda Bhowmick, an analyst at Fitch Ratings, said.

SBI has said it plans to raise $4.3 billion through a rights issue in 2010/11, half of its requirement to sustain growth over the next five years with Asia's third largest economy poised to expand at 8 to 9 percent in coming years.

The federal government, which owns 59.41 percent of SBI, can bring its holding down to 55 percent under current rules. Selling the stake all the way down to 51 percent would generate $2.5 billion at SBI's current market price.

Shares in SBI extended gains to 3.3 percent after the news, before closing 1.2 percent higher at 2,070.25 rupees ($45.53), outpacing the broader market's 0.64 percent rise and a tad over the 1.1 percent uptick in the sector index.

View the full story in Reuters.