NEW DELHI: State Bank of India may raise about Rs 20,000 crore by selling shares over two years to fund capital requirements and expansion plans as it looks to take advantage of the surge in stock prices, driven by optimism about the Narendra Modi government putting economic growth back on track. India’s largest bank is in discussions with the finance ministry over its financial requirements.The government is expected to support the plan as it’s open to lowering its stake in state-run banks to 51%, besides which it doesn’t have anywhere near the money needed to infuse the capital they require.“We are in talks,” said a government official aware of the deliberations. “In principle, our stand is that banks can explore the markets provided the government retains majority.” The government’s stake will drop to around 53% from 58.6% if it approves SBI’s proposal. SBI Chairman Arundhati Bhattacharya declined comment.Public sector banks require additional common equity of Rs 2.4 lakh crore by 2018 to meet Basel III norms. But the government has allocated just a relatively paltry Rs 11,200 crore for bank capitalisation in this fiscal.Last week, Financial Services Secretary GS Sandhu had said the government was drawing up a road map for state-run banks to raise resources from the market.“We are devising a strategy on how much stake dilution can be done in state-run banks. This will be staggered over a period of five years,” he had said.In his budget speech on July 10, Finance Minister Arun Jaitley had said the government proposes to raise capital through the sale of shares largely through the retail route while retaining a majority stake in state-run banks.SBI is also looking to absorb at least one of its associate banks in this fiscal year and some of the money raised through the public offer will go toward this. “We are looking at the capital requirements over a long tenure and in-principle approvals will help us to time our issues,” said an SBI official, requesting anonymity.In January 2014, the bank raised Rs 8,032 crore by selling shares through the qualified institutional placement ( QIP ) route. The issue, however, was largely subscribed by state-owned Life Insurance Corp. Sentiment is very different now.“The markets were more depressed at that point of time. We now hope to benefit from the bull run that has prevailed in the market for quite some time,” said the SBI official cited above. SBI’s share ended at Rs 2,597.65 on the BSE on Thursday, having risen more than 40% in the past year. A recovery in the economy will also improve the fortunes of public sector banks, which have been labouring under the weight of rising bad loans as companies hit by the slump have found it difficult to repay debt.The finance ministry is also looking at various measures to help banks meet capital requirements under Basel III norms. It may also prod state-run banks to hive off non-core business such as insurance or get them listed to raise resources.