Mumbai: The Rs16,000 crore ($4.2 billion) rights issue of the State Bank of India (SBI), the country's largest lender, is slated to open for subscription on February 18, finance ministry sources said.

The rights offer is likely to open around the middle of February and remain open for subscription for a month, sources said.

SBI plans to raise Rs16,736.31 crore by way of the rights issue, which will be made to the government and other existing shareholders, including GDR holders. It will also issue shares to employees under employees stock option scheme.

SBI will raise its issued capital from Rs526.30 crore to Rs 650.00 crore.

The government will subscribe to its over 59 per cent shares on the last day of the issue, the sources said. The government's contribution of around Rs10,000 crore for its 59.73 per cent stake would, however, be made in the form of a bond issue.

Once the bonds are issued, the government will pay an interest on them, which would amount to Rs790 crore a year. This payment, however, will be more than offset by taxes and dividends that SBI pays the government, according to finance minister P Chidambaram.

The government had projected accruals from SBI at Rs4,800 crore over the next three years. After 2010-11, the government estimates at least Rs1,892 crore a year in dividend and taxes from the bank.

SBI had priced its rights issue at Rs1,590 per share (face value of Rs 10 each). With the share price still ruling at 25 per cent premium - at Rs2,131.90 in the afternoon trade on BSE today - in a declining market, SBI is unlikely to revise the offer price.

Under the issue, existing shareholders would get one for every five shares hold.

SBI plans to amalgamate its unlisted subsidiary State Bank of Saurashtra with itself and is awaiting government approval as it will require a change in laws.

"The matter is likely to be taken up by the cabinet next week," finance ministry sources said.

"The issue has been delayed as the approval from the Reserve Bank and law ministry is still to come. The approval by RBI and law ministry could come today or tomorrow," finance ministry sources said.

Once the cabinet gives its approval, the government would have to get parliament`s nod to amend the SBI Act and later the SBI Subsidiaries Bank Act, sources said.

The board of SBI and State Bank of Saurashtra have already given their approval for the proposed merger, although a section of bank employees are still opposing the move.