Business Daily from THE HINDU group of publications
Wednesday, May 30, 2007
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Business Daily from THE HINDU group of publications Wednesday, May 30, 2007 ePaper |
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Money & Banking
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Public Sector Banks
Santanu Sanyal
Value embedded With a small equity base, the associates have built huge reserves and earned handsome profits. Market prices as also the book value of their shares are quite high Prices of their shares jumped soon after the passing of the Amendment Bill in Parliament
Kolkata May 29 While State Bank of India's associate banks are keenly awaiting how their parent bank would like to proceed in the matter of unlocking the value of their shares following the Lok Sabha's passing of the State Bank of India (Subsidiary Banks Laws) Amendment Bill 2006, no immediate decision in this regard, it seems, is possible. No dates have yet been finalised for holding meetings between SBI and their associate banks to discuss the relevant issues. Perhaps understandably so. State Bank of India's Chairman is busy attending annual general meetings of the associate banks till the end of this month. SBI's own AGM too is due next month.
Handsome Profits
The eagerness of the associate banks is understandable. The performance of these banks, despite their regional identities, has been extremely good. Even with a small equity base, they have succeeded in building up huge reserves and posting handsome profits. The market prices as also the book value of their shares are quite high. No wonder, the prices of their shares jumped soon after the passing of the Bill in Parliament.
Issues for review
Several issues are likely to come for review. First, the splitting of the stocks as the face value of shares of most of the associate banks is Rs 100. Then there is the issue of limited floating stock. SBI's holdings in most of the associate banks vary from 75 per cent to 100 per cent and the public holdings including employees' shareholding vary from less than 25 per cent to 25 per cent.
Dematerialisation
The dematerialisation of share is another matter, which will deserve attention. The authorised capital of the associate banks is too small compared with their reserves, balance sheet size and profits. Also, there is a cap of 200 shares in the shareholding by individuals. "We've to decide which way to move forward and how to go about in this regard," observe sources close to associate banks, conceding that the decision-making process will be tardy. "Nothing will happen overnight because the game-plan is not yet ready." But it is also felt that the finalisation of the game-plan should brook no delay. This is because the capital requirements of all the banks will substantially rise as per the Basel II norm. At present, every associate bank is constrained by the small size of the equity capital. It, therefore, remains to be seen how the value of their shares is unlocked and the restructuring takes place.
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