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Our Banking Bureau
Mumbai, Sept 4: UTI Bank's Rs 73.50-crore maiden public issue is set to hit the market on September 21. The bank will make a fresh offering of 1.50 crore equity shares of Rs 10 each at a premium of Rs 11 per share, amounting to Rs 31.50 crore, while its promoter, Unit Trust of India (UTI), will offload 2 crore equity shares at a price of Rs 21, totalling Rs 42 crore, in favour of the public.
Post-issue, UTI's stake in the bank will drop to 61.54 per cent from 86.95 per cent at present. While no reservation has been made for non-resident Indians (NRIs) and overseas corporate bodies (OCBs), UTI Bank has reserved 2.2 lakh shares for preferential allotment to its employees.
UTI Bank's capital adequacy ratio, which currently stands at 9.72 per cent, will increase substantially following the issue. The bank has forecast a 45 per cent increase in its interest income during 1998-99, while other income is expected to rise to Rs 73.50 crore from Rs 60.90 crore in 1997-98.
The bank expects its deposit base toincrease by 25 per cent during the year with an average level of Rs 3,000 crore, while advances are expected to increase by 32 per cent and are likely to be at an average level of Rs 1,925 crore. Analysts are of the view that this target can be achieved despite the economic downturn, given the small base of the bank. UTI Bank's deposit base during 1997-98 grew by 93.84 per cent to Rs 2,731 crore while advances grew by 136 per cent to Rs 1,627 crore.
UTI Bank currently has the highest level of non-performing assets (NPAs) among the new private sector banks. The bank's net NPAs for the year ended March 31, 1998, stood at 5.63 per cent.
INSIGHT
Prospective EPS unattractive
The reality in the primary market is that investors have made money in bank stocks. Issues of Corporation Bank, Bank of Baroda and more recent ones such as State Bank of Bikaner and Jaipur and Jammu & Kashmir Bank are cases in point. There is an appetite for bank issues. But there are problems associated with UTI Bankthat cannot be overlooked.
For one, the bank is coming to the market with a lot of baggage. In five years of operations the bank already has gross non-performing assets to total assets of 3.66 per cent. In keeping with the trend seen among other banks, this can only worsen. The bank has priced its issue at 13.72 times its historic earnings. HDFC Bank, which has gross NPAs of less than 1 per cent, trades at 17.5 times earnings, while ICICI Bank which has gross NPAs of 2.6 per cent trades at just 11.5 times.
The other problem with the private sector banks is the incidence of large equity bases. In UTI Bank's case, the post-issue equity will be Rs 130 crore; while the profit expected for the current year is Rs 31.63 crore. Thus, the prospective EPS will be unattractive at Rs 2.43. In addition to the quality of its assets it will take the bank a long time to earn a decent return on its net worth. The weighted average return on net worth for the last three years is just 10.5 per cent.
Copyright © 1998Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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