State Bank of India is planning to review interest rates in the next one week, Chairman O.P. Bhatt said today. The decision on reviewing interest rates by the country's largest bank comes after Finance Minister P. Chidambaram Wednesday met state-run banks' heads and asked them to reduce deposit rates.

"Given the excess liquidity and the current situation, my impression is that banks are inclined to cut interest rates on short-term deposits by 50 basis points," Chidambaram had said. SBI is also looking at selling 5-10% stake in its proposed holding company to three-four investors. The bank is setting up a holding company that will include its life insurance, mutual fund and yet-to-be set up non-life ventures.

SBI plans to set up the non-banking finance company in two-three months, Bhatt recently said.

State Bank of India has decided to offer 5-10% stake in the Insurance arm to 3-4 investors. The biggest bank in India to mull interest rate revision in one week .

Meanwhile the valuation of its proposed holding company for insurance and mutual fund business would be in the region of $ 5-7 billion, according to merchant bankers. Talking to newsmen on the sidelines of the Banking Conclave 2007 organised by Ficci (eastern region) on Thursday, SBI chairman OP Bhatt said, “We are currently working on the legal aspects of the proposed holding company so that it can raise additional funds from the capital for our insurance and mutual fund businesses and then get listed. Even though the holding company is yet to take shape, the merchant bankers have valued it at $ 5-7 billion.”

In a bid to unleash the value of investments in SBI Life Insurance and SBI Mutual Fund, SBI has decided to get its proposed holding company for these two businesses listed on the stock exchanges. SBI plans to transfer its investments in insurance and mutual funds businesses to a holding company within the next two to three months. The holding company is likely to be listed in 2008-09.

SBI is going the ICICI Bank way. ICICI Bank has already announced its plan to float a subsidiary, ICICI Holdings, and transfer its investments in ICICI Prudential Life Insurance, ICICI Lombard General Insurance, Prudential ICICI Asset Management and Prudential ICICI Trust to the new company. ICICI Holdings will tap the capital market.

“The move to have a holding company for SBI Life and SBI Mutual is to bring in synergy in operations, unleash the valuations of SBI investments in these two outfits and raise capital easily,” Mr Bhatt added. Incidentally, SBI owns 74% in SBI Life Insurance and the rest 26% is held by Cardif of France. Similarly, Societe Generale Asset Management of France holds 37% stake in SBI Mutual, while the rest 63% is held by SBI.

SBI is also planning to enter into the general insurance business. “We have identified three overseas firms and may float a JV with any one of them,” he added. The general insurance venture may materialise either by the end of this fiscal or the early part of the next fiscal.

The largest public sector bank in the country is also planning to raise Rs 15,000 crore by December. “SBI is governed by the SBI Act, and based on that, government holding in our bank cannot be diluted below 55%. At present, government holding in the bank is at 59.7%.

Therefore, we can dilute 4.7% to raise nearly Rs 6,000 crore of capital. To raise the additional capital, we may use different instruments like subordinated bonds. However, it has not yet been decided whether the government holding of 4.7% will be fully or partly diluted,” Mr Bhatt said.