Financial Daily from THE HINDU group of publications
Sunday, Oct 23, 2005
Financial Daily from THE HINDU group of publications Sunday, Oct 23, 2005 |
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Banking Money & Banking - Public Offer Markets - Public Offer Banks account for bulk of equity market mobilisation Suresh Krishnamurthy
Chennai , Oct. 22 OVER the past decade, the banking segment has remained the single largest consumer of capital from the domestic markets. Out of every Rs 100 invested in capital offers, at least Rs 40 would have been invested in a bank. That is, barring 2003-04, the proportion of funds raised by banks has seldom been less than 40 per cent of the funds raised by all companies from the capital markets. That only three banks — ICICI Bank, Bank of Baroda and Union Bank of India — are now seeking to mobilise about Rs 10,000 crore from the capital markets is, therefore, not unusual. It has been the norm in the past. Given that larger banks such as State Bank of India, Canara Bank and HDFC Bank too may need to visit the capital markets in the near future, the probability of banking capital continuing to dominate the public offer landscape will continue. Over the past decade, banks have had to contend with changing regulations relating to capital adequacy and provisioning for bad loans. The balance sheet size of banks has also been growing at an average rate of about 15 per cent per annum. Both balance sheet growth and regulatory changes needed banks to boost their capital base. In addition, one by one, public sector banks also got themselves listed during this period. The insatiable appetite of banks for equity capital has implications for valuation of bank shares. By definition, they need to trade at lower price to earnings multiple and they do. The average PE for a listed bank is about 14.9. In contrast, non-banks, which access the capital market less frequently, trade at a PE of about 26.5.
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