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NEW DELHI - The government is seeking legislative approval to sell down its stake in top lender State Bank of India (SBI) to 51 percent, which could raise about $2.5 billion, a quarter of what the bank needs to grow over the next five years.

 

On Monday, Finance Minister Pranab Mukherjee introduced a bill in the Lok Sabha seeking approval for cutting the government's stake in SBI, and for the bank to raise capital by issuing shares or through a rights issue.

 

"This is an operational matter to see that SBI does not face capital constraints as the economy grows over 8 percent, resulting in lending growth rates rising at 25 percent or above," Ananda Bhowmick, an analyst at Fitch Ratings, said.

 

SBI has said it plans to raise $4.3 billion through a rights issue in 2010/11, half of its requirement to sustain growth over the next five years with Asia's third largest economy poised to expand at 8 to 9 percent in coming years.

 

The government, which owns 59.41 percent of SBI, can bring its holding down to 55 percent under current rules. Selling the stake all the way down to 51 percent would generate $2.5 billion at SBI's current market price.

 

Shares in SBI extended gains to 3.3 percent after the news, before closing 1.2 percent higher at 2,070.25 rupees, outpacing the broader market's 0.64 percent rise and a tad over the 1.1 percent uptick in the sector index.

 

SBI raised $4 billion in 2008 through a rights issue with the government issuing bonds to the bank in lieu of cash. With a 16-year high fiscal deficit that India is committed to cut, a repeat of this move is unlikely, analysts said.

 

The government has said it plans to bring down its holdings in banks but would keep majority control, a plan that has faced political and union opposition.

MUMBAI (Reuters) - The State Bank of India, the country's largest lender, reported a 10.2 percent rise in quarterly profit on trading gains and rising loan demand.

The bank, which along with its associates controls almost a quarter of Indian bank loans and deposits, said on Saturday its July-September net profit rose to 24.9 billion rupees ($530.2 million) from 22.6 billion rupees a year earlier.

That met a Reuters poll of brokers who forecast a profit of 24.6 billion rupees for the period.

Closest rival ICICI Bank said on Friday its quarterly net profit rose 2.6 percent, beating forecasts.

Shares in State Bank, valued at $31.5 billion, rose 26 percent in July-September, beating a 20 percent rise in the sector index and an 18 percent gain on the benchmark index.

NEW DELHI - State Bank of India, the country's top bank, is unlikely to raise lending rates in the next six months, its chairman said on Tuesday.