IPOs hit among small investors

According to market estimates, around Rs 300- 400 crore has moved out of banking system.

With the boom in the capital market and the positive sentiment prevailing amongst the retail investors, a huge out-flow of money has been witnessed by banks in Gujarat in the first half of the last week in September.

According to the bankers in Gujarat, a larger number of small investors had applied for initial public offering (IPO) subscription that has washed away approximately Rs 300 - 400 crore from entire Gujarat's banking system in just one week. However, as per some banker's the outflow of the depository money from the banks in Gujarat might exceed then what is been estimated.

T K Sharma, general manager, Union Bank of India (UBI), Gujarat circle, said, "As per the market estimates, around Rs 300 crore to Rs 400 crore has moved out of the banking system in Gujarat due the recent IPO issues that hit the capital market." "In the first half of The last week, roughly Rs 55 crore has flowed out of the UBI for the Power Grid IPO alone," added Sharma.

If other IPOs are taken into consideration the figure will further rise for the bank. "Normally on an average the deposits that move out of our bank are around Rs 20 crore," he adds. The recent IPO that hit the capital market are the Power Grid Corporation, Consolidated Construction Consortium Ltd (CCCL) and Kouton Retail India Ltd.

All have been a big hit amongst small investors, which is a big reason for the huge outflow of the money from the Gujarat's banking system.

According to bankers, during the IPOs, most of the money flows into Mumbai' banking system. It is estimated that nearly 95 per cent of the money from Gujarat flows into the kitty of Mumbai's banking system and the remaining goes to Delhi. However, much of this money flows back into the Gujarat's banking system after the allotment process is complete and much happens if the issue are oversubcribed and if the small investors are not allotted enough share that for which they bid.

H C Pattnaik, chief general manager of State Bank of India (SBI), Gujarat circle, holds a similar view. He says his bank might have a 25 per cent share of Rs 300 -400 crore that has flown out of Gujarat's banking system. Some banks might face troubles that arise due to the outflow of money from the bank deposit holdings during the ongoing IPO issues. According to Pattnaik, SBI been a major bank does not face such fund constrain as recently SBI was able to mobilise Rs 2,800 crore net growth in its deposits.

According to Pattnaik, approximately Rs 100 - 120 crore has moved out of the SBI due to last week's IPOs. However, he admitted that the biggest hit amongst the small investor was the Power Grid IPO and a major chunk of the deposits of the bank went into the Power Grid IPO. Meanwhile, the lead bank of Gujarat, Dena Bank too witnessed an outflow of deposits of around Rs 30 crore during the recent IPO issues period.

A banker from the Bank of India (BOI), Gujarat circle, said that its a trend peculiar to Gujarat as it has been the largest investing state into the equities after Maharashtra.

So there is a heavy outflow of money from the banking system in Gujarat. According to him, three district register highest investment in IPO.

Ahmedabad leads in the investment in IPO issues, followed by Surat and Vadodara. According to him, approximately Rs 80-100 crore might have moved out of the BOI from Ahmedabad alone, if entire state is taken then the figure might rise further.

The small investors are actively participating in the equity market due to the performance of corporates in India and the investor would like to cash in on the opportunity.

Moreover, with the growth in infrastructure and retail segment, the investors participated overwhelmingly in the recent IPOs.

However, looking at the credit-deposit ratio (CDR) of the entire banking sector in Gujarat, it had registered negative growth as the CDR dropped by 1.95 per cent. The CDR for the quarter-ended on March 2007 stood at 73.51 per cent, while the CDR for the quarter period of June 2007 was at 71.56. It is expected by the bankers that in the quarter-ended on September 2007 might also register a fall in the CDR due to huge investment by the small investors in the IPOs.