India's SBI looks to raise $1.5bn in share sale State Bank of India has launched a $1.5bn issue of new shares as the country's largest bank by assets looked to repair its balance sheet and gear up for looming Basel III capital requirements. State-backed SBI, which is majority owned by India's government, has seen a deterioration in asset quality over the past two years, against a backdrop of a general slowdown in Asia's third-largest economy. New shares are being issued at Rs1,565 to Rs1,596, a narrow discount of up to 2 per cent below Tuesday's close. The move is part of a wider trend in which major banks across Asia are expected to raise equity over the next two years, partly to meet higher capital requirements but also to fund higher lending and combat rising bad debts. Fitch said in December that it expected to see "active issuance of Basel III capital instruments" in both China and India during 2014. This, the rating agency added, is "to offset mounting asset-quality and earning pressures as well as the requirement to meet higher minimum Basel III regulatory capital requirements." In China, banks need to raise tens of billions of dollars of fresh capital for similar reasons, even though most appear to meet current capital requirements. CIMB of Malaysia recently raised $1bn to ensure it meets its target of a 9.5 per cent capital ratio, while also coping with its exposure to Indonesia's slowing economy. The latest sale of new shares at SBI, which will result in dilution of 7.8 per cent of the enlarged market capitalisation if fully placed, is India's largest in nearly a year. Take-up will serve as an indicator of increased investor appetite for equity after the market benchmark Sensex index hit record levels in December. Indian banks have until 2018 to become compliant with the new Basel capital requirements, but analysts believe the nation's state-backed institutions, which control about three-quarters of bank assets, will struggle to meet them given declining profitability and rising troubled assets. "India's state-backed banks need to raise a lot of capital to meet Basel III, but given that their performance has not been strong of late, it is going to be tough for them to do so, at least at reasonable valuations," says Anish Tawakley, a banking analyst at Barclays in Mumbai. Wednesday's move by SBI is the most significant step to repair the balance sheet of India's most systemically important lender since the appointment of new chairman Arundhati Bhattacharya in October. The share sale also follows a decision by rating agency Moody's to downgrade its outlook on SBI's financial strength from "stable" to "negative" last September, citing worries over bad debts. SBI's level of non-performing assets were 5.6 per cent in the quarter ending in September, up from 3 per cent in March 2010. Shares in State Bank of India's stock were 1 per cent lower in Mumbai morning trade.