Indian over-regulation stifles SBI market cap
SBI, which is a generic name in the Indian banking system, is struggling in the market capitalisation game, reports Arun Kumar.india Updated: Jun 28, 2007 04:09 IST
State Bank of India, which is almost a generic name in the Indian banking system and dominates all aspects of financial services, is struggling in the market capitalisation game —it stands at number two with a value of Rs 76,166 crore. The home-grown private sector bank, ICICI Bank, which was promoted in 1994, tops in banking market cap with Rs 84,389 crore, which will eventually increase to Rs 104,000 crore if its latest public issue of Rs 20,000 crore is factored in.
On March 31, 2007, State Bank of India and its seven subsidiaries had 146 million customers and 15 per cent market share in term of deposits and advances. The bank, alone has 9,517 branches and, after including associates banks, the number rises to 14,337. State Bank of India has a deposit base of Rs 4,35,521 crore and advances and investment of Rs 3,373 crore and Rs 1,49,149 crore, respectively. It also does 67 per cent of the government’s banking business, which is its largest customer in the country. As against this, ICICI Bank has deposits of Rs 2,30,510 crore and advances of Rs 195,866 crore.
This does not mean the State Bank of India scrip is not as fancied as ICICI Bank. A cross-section of fund managers feel State Bank of India is a classic case of Indian over-regulation.
Fund managers pointed out that State Bank of India, or for that matter all public sector banks, are caught in the vice of two stringent laws. The first says the combined shareholding of foreign institutional investors (FIIs) in these banks cannot be more than 20 per cent. Private banks, on the other hand, can have FII holding up to 49 per cent, and up to 74 per cent through overseas listing.
In the case of State Bank of India the FII holding is already above 19 per cent. This virtually means no new FII can buy State Bank of India shares unless another FII sells and vacates the space. “If any FII sells its holding in State Bank of India it can charge a 30 per cent premium on the underlying stock price,” said fund manager with CLSA.
The second big obstacle to high market capitalization in state-owned banks is is the minimum government holding of 51 per cent. “This affects their ability to raise fresh resources,” said a fund manager with Kotak Mahindra Bank. “In an economy that is growing at 8 per cent plus, leading banks should grow at rates over 20 per cent. And to support the growth they need to raise fresh resources, which is not possible as in many cases, the government holding is close to the statutory minimum,” he added.
The government holding in State Bank of India is already at 59.73 per cent. After the proposed round of public issues, through which the bank is planning to raise Rs 6,000 crore, State Bank of India will have no option to raise fresh resources other than long-term subordinated debt. Analysts feel that State Bank of India can fund its growth for a mere 3-4 years in this scenario.