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Canara Bank to keep IPO trickle flowing

State-run Canara Bank said on Monday that it would go public with a Rs 3.85 billion stock issue next week, becoming the fourth bank this year to launch an initial public offering in an otherwise sleepy market.

The banking sector has been the flavour of the year in an IPO market that has seen only five issues worth Rs 15.96 billion in total.

Besides three banks, an IT firm targeting the financial sector and a telecom services company have gone public.

"The banking sector is doing well, so there is investor interest," said J M Morgan Stanley executive director V K Bansal. "But otherwise, the IPO market has been dull and it is likely to revive only if the secondary market picks up."

The Bombay Stock Exchange Sensex has lost nearly 16 per cent from the start of April.

Last year, there were 15 equity public issues, but they were worth a much lower Rs 3.22 billion, according to data from market monitor Prime Database.

State-run banks have been going public to augment their capital base and retain comfortable capital adequacy norms as they expand. India's central bank requires banks to maintain a capital adequacy ratio of at least 9 per cent.

Other banks that went public this year are Punjab National Bank, Union Bank of India and Allahabad Bank, the last of which is yet to be listed.

On Monday, Punjab National's shares closed at Rs 42, 35 per cent higher than the offer price of Rs 31, while Union Bank, which was offered at Rs 16, ended lower at Rs 15.8.

Indian banks' profits were boosted last year mainly by trading income as lending to industry fell amid an economic slowdown.

Driving growth

Banks are now targeting retail customers, who are snapping up home, auto and personal loans amid falling interest rates. Analysts believe the retail segment will drive banks' growth in the next few years.

Merchant bankers are pinning their hopes on an investor-friendly budget in February and for the government's floundering privatisation programme to find its feet again after starting off with a bang earlier in the year.

"We are not going to see plenty of issues coming up like in the mid-90s, but the pipeline should slowly build up as we go into next year," Ravi Kapoor, senior vice-president, DSP Merrill Lynch, said on the sidelines of the new conference to announce Canara Bank's issue.

India's largest car maker, Maruti Udyog Ltd, a unit of Japan's Suzuki Motor Corp, is one of the large issues in the pipeline.

The government, which holds a 45.54 per cent stake in Maruti, plans to sell 20 per cent of its stake through a public issue. The Business Standard daily said on Monday the float could happen within the next three to four months.

Canara Bank, one of India's larger banks with an asset base of Rs 720.83 billion, is offering 110 million shares at Rs 35 each. The issue will be open between November 18 and 27.

The South India-based bank had an equity base of 5.78 billion rupees at the end of the financial year to March and a capital adequacy ratio of 11.88 per cent.

It returned 48 per cent of its capital to the government early this month, reducing its equity to Rs 3 billion.

After the issue, the bank's capital will increase to Rs 4.1 billion and the government's stake will come down to 73.17 per cent. The bank expects to maintain a capital adequacy ratio of about 12 per cent, its chairman R V Shastri said.

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