SBI leads banks higher on holding company talks

State Bank of India, the country’s largest lender by assets, led state-run banks higher in Mumbai trading after an official said the government is working on creating a holding company to infuse capital into them.

The holding company will be a repository of government equity in all state-run banks, said the official, who wasn’t authorized to speak publicly.

State Bank of India gained 4.02%, Canara Bank climbed 6.18% and Bank of India advanced 4.89%. The 12-member S&P BSE Bankex index rose 3.28%.

State-controlled lenders, which account for more than 70% of India’s outstanding loans, have historically been less capitalized than privately owned peers as a 51% government ownership requirement limits their scope to sell shares. That in turn restricts their ability to boost lending or requires the government to inject cash into the banks.

“A holding company structure will give banks better access to capital,” Hatim Broachwala, a Mumbai-based banking analyst at Karvy Stock Broking Ltd, said by phone. “While the government may hold more than a 51% stake in the holding firm, there is scope for cutting the holding company’s stake in the banks below 51% to raise capital from the market.”

State Bank of India