State Bank of India turned vibrant on Friday on reports that the SBI Act may be amended paving the way for transferring the RBI holding in the bank to the Centre.

Another outcome of the amendment would be the increase in the bank's capital base, enabling it to carry out much needed expansions..

The stock of India's largest commercial bank edged higher by 1.68% to Rs 295.80 by 10:20 IST, as a result. A total of 90,677 State Bank of India shares were traded on BSE by that time. Yesterday, despite the general weakness in the market, the scrip ended higher by a decent 2.39% to Rs 290.90. Between 31 March and 10 April 2003, SBI climbed 9% to Rs 290.90 from Rs 266.65.

The recent reports only vindicate earlier news that the Reserve Bank of India had sent a proposal to the government for bringing down its holding in SBI. RBI holds 59.7% in SBI.

The proposed bill to amend the SBI Act of 1955 is expected to be ready before the monsoon session of Parliament. Amendments in the SBI Act have been proposed to enable SBI to increase its authorised capital, bring the voting rights of shareholders in conformity to the provisions of Banking Regulations Act.

The amendment is also needed to enable SBI to rationalise the powers of the board, acquire businesses of other banks and in order to deal with other matters relating to shares, in line with the Companies Act.

The interest in the SBI scrip is also strengthened by the long-standing expectation that the Centre may hike the cap on foreign institutional investors' holding in SBI from 20% to 49% or that the government will exclude the Global Depository Receipts holding of 7.65% from the ceiling of 20% for FIIs. Currently, the limit for FIIs in SBI stands exhausted as they hold a 19.63% stake (as per the shareholding pattern of the bank on 31 December 2002).

The state-run bank is also expected to deliver encouraging Q4 and FY 2002-03 results. Analysts expect the bank to record a growth of 13-23.5% in net profit to Rs 695-740 crore (Rs 6.95-7.4 billion) for the quarter ended 31 March 2003.

In addition, last week, there were reports that SBI recovered a sum of Rs 124.80 crore (Rs 1.24 billion) during 2002-03 through legal cases filed for recovery in securities transactions pertaining to the year 1991-92. These recoveries shall be accounted for at the time of finalisation of accounts for the year 2002-03.

Meanwhile, the enactment of the Securitisation Act has proved of immense help to SBI. The Act allows lenders to attach assets of defaulting borrowers without having to go to court for the purpose. It also paves the way for the setting up of asset reconstruction companies to recover non-performing assets. SBI has already spruced up its act in respect of recovery of bad loans and has moved to seize the assets of defaulting borrowers.

However, analysts say there are concerns that the bank may also make a provision for the huge loans lent to the Dabhol Power project this quarter. SBI's total exposure to the project is around Rs 1,800 crore (Rs 18 billion) and there have been rumours that the bank may make a provision of 10% of the total amount, i.e. Rs 180 crore (Rs 1.8 billion).

For Q3 ended 31 December 2002, SBI recorded a 28% growth in net profit to Rs 787.05 crore (Rs 7.87 billion). Net revenues jumped by 18% to Rs 3,756.93 crore (Rs 37.56 billion).

BSE code: 500112