Indian bank IPOs

ET reports:

A slew of bank issues are expected to set Dalal street on fire, with close to Rs 34,000 crore worth of equity set to be raised in FY08.

Following the new Basel II guidelines (for better risk management) put out by the regulator, many banks are waiting to tap the capital market through a combination of international and domestic offerings . Banks with an international presence will have to comply with the new guidelines by April next.

The current quarter is likely to see a bulk of these issuances, starting with ICICI Bank, DCB and Central Bank, hitting the markets by June-end . The State Bank of India (SBI) has also announced its intention to raise Rs 15,000 crore through a mix of equity and debt instruments. Other offerings include UTI Bank and IDFC. Apart from these, other names like Dhanalakshmi Bank are also looking to tap the market via rights.

Most bankers expect the issues, irrespective of huge volumes, to go through smoothly, given the huge demand for banking paper among investors. Bankers maintain that most investors view banking scrips as a play on the long-term growth of the economy.

The surprise for me is the Central Bank of India issue. Until even a couple of years ago, not many people, including insiders, gave the bank much chance of revival. And yet the bank has turned a tidy profit this year. Of course, the turnaround story in Indian banking is Indian Bank, declared one of three "weak" banks by the M S Verma committee in 1999. Indian Bank stormed back into the black and made a highly successful IPO in February this year. The bank's stock, issued at Rs 91, today trades at 124, an appreciation of 33% in just two months!

As I have argued often, the improved performance of Indian banks owes to the changed outlook for the Indian economy but this is not the whole story. There has been a considerable improvement in banks' productivity. One simple measure: while volumes have exploded, there was a freeze on recruitment for well over a decade and indeed attrition through voluntary retirement schemes. It is only recently that public sector banks have resumed recruitment.