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State Bank of Hyderabad IPO in next fiscal

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To shed 49 pc in 2 phases

C.R. Sukumar

Hyderabad, March 28

Close on the heels of the Union Cabinet's decision to amend the SBI (Subsidiaries) Act, the State Bank of Hyderabad (SBH), the largest among the SBI associate banks, is planning to tap the capital market with its initial public offer (IPO) in the second quarter of next fiscal.

"The idea is to meet the capital needs for rapidly growing business volumes and also to meet the Basel-II norms," the SBH Managing Director, Mr Amitabha Guha, told

Business Line

.

On an authorised capital of Rs 50 crore, the bank has a paid-up equity capital of Rs 17.5 crore now. The bank had recently raised Rs 500 crore of subordinated debt under tier-II capital, which received AAA rating from ICRA. Following this, the bank's capital adequacy ratio improved to 13 per cent from 11 per cent earlier.

As a result of the growth in risk weighted assets and market risk assets as per Reserve Bank of India norms, SBH expects its capital adequacy to come down to around 11.5 per cent by the current fiscal-end. The book value per share stood at Rs 10,600 in March 2005 and is expected grow to around Rs 12,000 per share by the month-end.

In 2 phases

Though the bank is yet to appoint merchant bankers to begin the valuation exercise for the proposed IPO, it desires to have a PE ratio between 8-10 keeping in view the average PE ratio of public sector banks at 8 and of SBI at 10.

"We prefer SBI to dilute its holding in our bank from 100 per cent to 51 per cent in two instalments. We want to go for IPO in the second quarter of next fiscal and for the follow-on public issue sometime in next-to-next fiscal. If we can tap the market at a PE ratio of 8, our capital adequacy ratio can be comfortable till March 2009," Mr Guha said.

According to Mr Guha, the bank expects to post a growth of 25 per cent per annum in the next three-four years.

Related Stories:
SBI lines up three unlisted associates
SBH annual net drops to Rs 251 cr

(This article was published in the Business Line print edition dated March 29, 2006)
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