Govt can buy RBI's 59% stake in SBI

New Delhi: The Union Cabinet has allowed the Government to buy Reserve Bank of India's 59% stake in State Bank of India which is country’s largest commercial bank.

In Budget 2007-08, Finance Minister P Chidambaram had announced that the government would buy the RBI’s stake in SBI at an estimated market value of Rs 40,000 crore to separate ownership and regulatory functions of the central bank.

The market value was determined taking the SBI share price at Rs 1,300 in January. But the actual cost will be determined by the market forces as the current SBI share price is hovering around Rs 1,323. The government will make the payment in cash as the commercial bank is a listed entity.

However, the transaction will have no revenue impact as the money paid to the RBI will come back to the government as dividend. According to the final stake purchase plan, the government will issue a cheque on June 29, a day before RBI closes its annual books of accounts.

The government will value 31.43 crore SBI shares with face value of Rs 100 each, held by RBI, at the average closing price for the last six months and moving average for the previous fortnight, finance ministry sources said.

Finance minister P Chidambaram had said earlier this week that the government has raised about Rs 5,000 crore through bonds outside the scheduled borrowings to partly fund the deal.

“The Finance ministry had sought Cabinet approval for an ordinance to amend the SBI Act, 1955 to make sure that the Centre hands over the cheque to RBI by June 30,” sources said.

Finance Minister P Chidambaram recently said the government’s additional borrowing in the first half of 2007-08 would be utilised to buy the RBI’s holding in SBI. The government has raised Rs 5,000 crore from the market outside its scheduled borrowing programme for the first half of this fiscal.

Depending on the advance tax mop-up on June 15, the finance ministry will decide how the Rs 40,000 crore would be arranged for a short period to buy the RBI stake in SBI.

With inputs from agencies