The government of India has announced that it will invest 100 billion rupees ($2.5 billion) in the rights issue of State Bank of India (SBI), the nation’s largest commercial bank.

However the actual number of shares to be subscribed, coupon rate and tenure of the securities will be worked out later, an official release said.

The announcement was made by Information & Broadcasting Minister Priya Ranjan Dasmunsi in New Delhi today.

This deal will enable the Government to receive likely around Rs. 1358 crore by way of dividend and taxes from the Bank during the years 2008-09, as against an expenditure of around Rs. 790 crore as interest to be paid to the Bank for proposed securities.

SBI has various large-scale growth projects, which would involve additional capital between Rs 50,000 crore and Rs 1 lakh crore, out of which Rs 15,000-20,000 crore would come through the rights issue.

The fund thus raised, would also be utilized to augment the financial position of new proposed companies and its owned subsidiary companies like SBI Life Insurance, where it plans to infuse Rs 500-1,000 crore.

The transaction will be completed within the current financial year and a Securities Redemption Fund will be created thereafter.

The SBI stock closed at Rs. 2302.40 after gaining around 1.52% on Friday. The stock also touched an intraday high of Rs. 2645.00 and low of Rs. 2382.30.