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The second coming of maligned Indian Bank

Over the last decade or so, I have met chairmen of many banks, particularly PSU banks, in connection with their IPOs, writes Ashok Kumar.

india Updated: Feb 06, 2007 19:44 IST

Over the last decade or so, I have met chairmen of many banks, particularly PSU banks, in connection with their Initial Public Offers (IPOs), and more recently, Follow-on Public Offers (FPOs).

While I shall reserve other comments about them, one thing I remember is that most of them boasted of innumerable branches spread across India. While scrutinising their IPO documents, I noticed, almost without exception, that it was just a dozen branches or so that were profitable and they were literally subsidising the rest.

Another boast was about their rapid computerisation. Now, if 75 per cent core banking coverage was their goal, they have done very well. Alas, consumers, especially urban ones, who are significant contributors to their bottomlines are not satisfied with such lip-service alone. As a result they gravitated to the new generation private banks.

One other memory that has remained with me is the repeated refrain of PSU bank Chairmen, that while their banks had run up huge accumulated losses, their financial condition was nowhere as bad as that of Indian Bank.

Well, that very same Indian Bank which had the dubious distinction of recording the largest ever losses in Indian banking history, is now coming out with a Rs.782 crore IPO. Of course, like that of most other PSU banks, its revival too can be attributed in no small measure to the government's sleight of hand abilities.

By wiping out its equity against accumulated losses, the impact of its worst excesses of the past have been cleansed (at least in the books), almost overnight. Further, tinkering with the capital base was undertaken by splitting its paid-up capital of around Rs.743 crore into Rs 400 crore of preference share capital and Rs 343 crore of equity capital.


In recent times, the bank's financials have worn a somewhat healthier look. A closer scrutiny though, makes it clear that the lower interest rate regime drove its treasury income which in turn, gave its financials a brighter hue.

The current gross Non Performing Asset (NPA) level of 2.34 per cent and net NPA level of 0.45 per cent passes muster, as does its Net Interest Margin (NIM) of 3.6 per cent. Its Current Account-Savings Account (CASA) ratio of 35 pr cent though is modest, and the over-dependence on term deposits could hurt in a rising interest rate regime.

Indian Bank's P/E (Price-Earning) ratio of around 7.5 puts it on par with its listed peers suggesting that it is more or less fully priced, though it scores on the

Price to Book-value (P/B) front.

Unlike its peers though, who have been making FPOs, this bank's stock will not suffer from the overhang of a secondary market price impacting the listing of its new shares.


And that, more than anything else, could attract investors with a penchant for PSU banking stocks.

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