C. Shivkumar

Bangalore, Jan. 21 All the SBI subsidiaries in the country are expected to become Basel-compliant by the end of this financial year, in a clear sign of group consolidation.

SBI has 7 associate banks with a combined network of 4,596 branches. SBI officials said that all of these units would become Basel-II compliant by the end of this financial year.

None of the subsidiaries/associate banks, however, have foreign operations. Under current Reserve Bank of India guidelines, only those banks having foreign operations are expected to become Basel-II compliant by March end this financial year.

The deadline for banks with domestic operations is March 2009. Bankers said that subsidiaries’ advanced deadlines for Basel-II compliance was directed by the parent.

SBI has global operations, both through branches and subsidiaries. The subsidiaries/associate banks are already compliant with current regulatory capital requirements of nine per cent. In fact, most of them have capital in excess of 11 per cent.

Under Basel-II, the banks would also have to bring in additional capital for covering operational risks. Bankers said that the equity floats by the subsidiaries have not yet been approved by the parent bank.

In fact, the sources said that the approval was unlikely to come in view of the consolidation objective. SBM, for instance, had sought a stock split of Rs 100 face value shares to Rs 10 before raising the capital from the markets, early last year.

Even this has not been approved. Like SBM, two other subsidiaries — State Bank of Bikaner and Jaipur and State Bank of Travancore are also listed banks.

Consequently, most of them have used the tier two or the hybrid capital route for beefing up their capital for meeting operational risk requirements under Basel-II.

The SBI subsidiaries have used both hybrid and tier-two capital during the last few months. Between September and December 2007, a total of Rs 790 crore was raised by three SBI subsidiaries — State Bank of Mysore, State Bank of Indore, and the State Bank of Travancore.

SBM, one of three listed subsidiaries, beefed up its tier-one capital, floating Rs 160 crore of perpetual bonds. Perpetual bonds, instruments without any maturity date, are treated as tier-one capital under current RBI guidelines.

SBM’s chief General Manager, Mr Dilip Mavinkurve, said, “The bonds will push up our capital to 11.48 per cent. After Basel-II, we will still have a CRAR (capital to risk weighted asset ratio) of over 11 per cent.”

The bankers said that all the subsidiaries have resorted to the basic indicator approach for meeting the operational risk guidelines. Under the basic indicator approach, the RBI prescribed that banks provide at least 15 per cent of their average annual income over the previous three years.

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