The government may cut the size of rights issue sought by country's largest lender

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SBI for raising Rs 20,000 crore to fund its business growth as there are huge demands from social sector on its resources.

The Finance Ministry is looking into the request of SBI for rights issue and would take a view on the quantum after going through all the details, sources said.

There are various possibilities, sources said, adding the government may cut down the size depending on availability of resources.

The government has recently got approval for spending an additional Rs 54,588.63 crore this fiscal to meet the requirements arising from the Commonwealth Games, anti-Naxal operations and compensating the oil marketing firms.

As far as government holding in SBI is concerned, it holds a 59.41 per cent stake in the bank, after acquiring RBI's stake in in 2007.

Earlier this month, SBI Chairman O P Bhatt had said, "We have sent a letter to government (for Rs 20,000 crore rights issue) so let's see what happens,"

"It is up to them (government) to decide to participate (in rights issue) or not," he had said.

If a rights issue does not happen, the bank has the option to go for a preferential issue or follow-on offer, he had said.

A rights issue will normally not lead to a dilution of government equity in SBI. The government's equity will only be reduced if it decides not to participate in the rights issue or does not fully subscribe to its quota.

At the same time, SBI have to put in money for subscribing rights issue of its associate bank State Bank of Mysore.

State Bank of Mysore intends to raise Rs 583.2 crore through a rights issue and SBI owns 92.33 per cent stake in the associate bank.

Thus, SBI would have to shell out about Rs 540 crore for subscribing rights issue to the extent of its holding. Besides, SBI has also agreed to pick up any unsubscribed portion of the retail shareholding.

The existing shareholders would get three equity for every 10 shares held as on the record date which is September 4, 2010.

The shareholders would have to pay a premium of Rs 530 on the face value of Rs 10 a share.