ICICI Bank goes for 1:5 stock split

Board approves splitting one equity share od Rs 10 into five shares of Rs 2 each

ICICI Bank, the country’s largest private-sector lender, on Tuesday announced that its board had approved the splitting of each equity share into five. This is the first time ICICI Bank has gone for a share split.

“The board has considered and approved the sub-division (split) of one equity share of the bank having a face value of Rs 10 into five equity shares of face value of Rs 2 each,” the bank said in a statement.

Though ICICI Bank did not give a reason for the stock split, companies usually split their stocks to keep prices attractive for retail investors.

The lender added each American Depository Share (ADS) of ICICI Bank would continue to represent two underlying equity shares, like at present. And, the number of ADSes held by an American Depository Receipt holder would, as a result, increase in the same proportion as the increase in the number of equity shares.

GOING LIGHT

Why companies split their shares

• To keep prices attractive for retail investors
• To improve their stocks’ liquidity on exchanges
• High prices lead to fears of their stocks becoming inaccessible to regular investors
• A wide shareholding helps by reducing the chances of sharp rise or fall in share price

Typically, banks sub-divide their shares to improve the stock’s liquidity on the exchanges.

The lender would seek shareholder’s approval for this stock split and record the date for sub-division of shares after that. On Tuesday, the lender’s shares fell 1.31 per cent from their previous close on BSE to end at Rs 1,547.70 apiece.

Earlier this year, J&K Bank had also announced a sub-division of its share in the ratio of 1:10. Axis Bank had also done so earlier.

Experts said many companies chose to go for stock splits when their share prices became very high, especially in a rising market. High prices lead to fears of stocks becoming inaccessible to regular investors, as only institutions or high-networth individuals could move the stock price. A wide shareholding helps a company by reducing the chances of sharp rise or fall in its share price.

Since the beginning of the year, 48 companies have decided to split their stocks.

A financial planner said: “Whether I hold one stock worth Rs 5,000 or 10 stocks worth Rs 500 each should not make any difference. But it does, for two reasons. One, cheaper stocks mean more people are willing to put their money in it. Two, there is an increased liquidity.” There has been a sharp spurt in trading volumes of the ICICI Bank stock.

According to financial experts, since good companies typically go for such splits, investors or traders take the cue. Even traders like stocks with higher liquidity.

Importantly, companies that have already seen sharp movements in their stock prices resort to this. This implies there is already enough investor interest in the stock. The split is only meant to keep the good mood going.