Date:14/09/2005 URL: http://www.thehindubusinessline.com/2005/09/14/stories/2005091403560100.htm

Back Share prices of State Bank subsidiaries soar — Anticipation of scrapping of share ownership restriction

Our Bureau

Mumbai , Sept. 13

THE shares of three listed subsidiaries of State Bank of India rose on the Bombay Stock Exchange on Tuesday in anticipation that the Government may remove the restriction on ownership of shares in these banks.

At present, a single shareholder cannot own more than 200 shares in these banks.

The stocks of State Bank of Travancore (SBT), State Bank of Bikaner and Jaipur (SBB&J) and State Bank of Mysore were on fire, two of them jumping up by over Rs 1,000 in a single day's trade.

The trigger was a statement reportedly made by the SBI Chairman, Mr A.K. Purwar, that the ownership restrictions in the subsidiary banks will be removed by the end of this year. In an interview to a news channel, the Chairman has also reportedly said the face value of the shares of these banks would be lowered from Rs 100 to Rs 10.

State Bank of India had written to the Government in the past to remove this anomaly. Due to this restriction, other subsidiaries of the bank could not go public.

What surprised the market was the rise in the stock price of SBT by more than 48 per cent and SBB&J by 44 per cent. In absolute value, the stock price of both these banks rose by more than Rs 1,000.

The SBT stock closed at Rs 3,558, an increase of Rs 1,158 (48.25 per cent) over the previous close, with a volume of 8,930 shares.

The SBB&J stock closed at Rs 3,540.54, up by Rs 1,060.65 (44.38 per cent) with 6,225 shares changing hands. However, the SBM stock was locked in 20 per cent upper circuit at Rs 3,715.95 with a limited number of 530 shares traded.

There was no circuit filter in the case of SBT and SBB&J as these stocks are part of the BSE PSU Index.

And on this index, the exchange has started futures and options trading. As per SEBI (Securities and Exchange Board of India) rules, for stocks that are part of an index on which futures and options are allowed, no circuit filter will be imposed.

Brokers said the stock price of these banks increased on the expectation that the restriction on ownership would go away soon. Moreover, there is also a possibility of the shares of these banks being available in the dematerialised form. These factors had so far led to the market players having a low-key interest in these stocks.

Analysts said these banks are highly undervalued compared to other stocks in this sector.

"These stocks were trading at around five to six times their earnings for 2004-05. Even after today's rise, they are still trading at less than 10 times their earnings. But they are still cheap compared to other banks," said a top official of a private sector bank.

A stock broker said the sharp rise in the stock is due to low liquidity in the shares. However, he said, once the 200-shares limit is withdrawn, the stock price of these banks will rise further.