The Hindu Business Line : FIIs raise exposure in listed public sector banks

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FIIs raise exposure in listed public sector banks

There are at least 10 banks where their stakes are in double digits

Our Bureau

Mumbai, July 23 Foreign institutional investors have found enough in the listed public sector banks to enthuse them as to warrant a scaling up of their exposure, often practically nothing when they went public, to significant chunks of paid-up capital as of June 30, 2007, the latest date for which shareholding data is available.

The exposure has to be seen in the context of these banks being not as visible or as actively tracked by the investment analyst community as their counterparts in the private sector are.

Today there are at least 10 banks where their stake is in double digits not counting the more celebrated cases such as State Bank and its associate banks or other large entities such as Canara Bank and Bank of Baroda.

Even banks that have had to delay their entry into the market, as they needed time to clean up their balance sheet adequately, have found FII support in recent times.

A case in point is Bank of Maharashtra. A total of 22 FIIs owned as of June 30, 2007, roughly 3.31 crore shares representing 7.7 per cent of the paid-up capital of the bank.

Yet, when it went public in early 2004 FIIs had shunned it completely.

Remarkable case

The case of Indian Bank is even more remarkable.

It no doubt attracted sizeable investment support from the FIIs when it went public in March this year having secured subscriptions to the tune of 11.36 per cent of the outstanding capital stock.

Yet, barely three months after the shares were listed they found it worthwhile to increase their exposure to the stock by picking up an additional 1.2 per cent.

The retail public would have had no reason to complain.

Here after all was a quick exit option and the fact that the bank’s share price has spurted by nearly 50 per cent from its issue price – the share closed at Rs 156.75 at the National Stock Exchange – has also meant that it was quite profitable too.

Other stocks

But other stocks haven’t done too badly either although it is hard to say that it is due solely to the new found FII interest in second-rung PSU bank stocks.

The Bank of India stock by no means the star performer in terms of operational parameters (it was ranked way down in the RBI ranking of banks, in terms of the ratio of gross profits to total assets as of March 2006) had shown a 150 per cent appreciation in share price in the last one year.

The scrip went from Rs 102 at the beginning of July 2006 to Rs 255 as of Monday (July 23). The other stocks too have gained handsomely at the bourses.

The current profitability is no doubt a matter of concern for investors. Equally, none of the FIIs would credit them with a growth performance in business volumes or profits rivalling their nimbler private sector players. But equally few doubt their potential for growth given the infrastructure they have built up over the years.

If Chinese banks can command hefty premiums in valuations despite concerns over the levels of non- performing assets, it clearly suggests that FIIs pay as much for potential as for current performance.

The FII interest in PSU bank stocks should be comforting news for Central Bank of India as it parades its prospects before the investing public.