Jan. 7 (Bloomberg) -- State Bank of India, the nation's biggest bank by assets, said it will consider selling stock to shareholders in a rights offer that may raise up to $4.2 billion.

The board will consider the offer at a meeting Jan. 14, when it will also examine whether to sell shares to employees, the bank said in a statement to the Bombay Stock Exchange today. It did not say when the sale may take place or the price of the shares.

The state-owned bank plans to raise 167 billion rupees ($4.2 billion) from stakeholders, a government spokesman said in New Delhi on condition of anonymity on Nov. 30. The Ministry of Finance will contribute 100 billion rupees to retain its 59.73 percent stake, the official said.

The 200-year-old bank has hired six investment banks, including Merrill Lynch & Co. and CLSA Ltd., to manage its share sale, three people familiar with the matter said on Dec. 20.

State Bank's closest rival, ICICI Bank Ltd., led Indian companies in 2007 in a record year for share sales as lenders raised funds to meet accelerating credit demand in the world's fastest-growing major economy after China.

Indian companies raised almost $20 billion in 2007 in share sales in the Indian market, including rights sales, according to data compiled by Bloomberg.

To contact the reporters on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net. M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net.

Last Updated: January 7, 2008 00:01 EST