The Rs 67.28-crore issue which opened on October 22 will close on November22.

The objectives of the issue are to augment its long-term resources, increaseits capital adequacy ratio from its current level of 1 per cent to 8 percent as per RBI norms and strengthen its equity base from Rs 17.93 crore toRs 62.77 crore after the issue.

It's quite surprising that a bank, with more than Rs 111 crore accumulatedlosses, is issuing shares at a premium. The bank has shown a net loss of Rs57.28 crore for the year 1997-98 and Rs 53.91 crore for the year 1996-97.This is the period when most banks showed satisfactory results.

Surprisingly, for the period ended August 31, 1999, on the eve of thisissue, when most banks showed a drop in profits, BoR registered a turnaroundwith a meagre net profit of Rs 3.99 crore. Non-performing assets (NPAs) ofthe bank are at 9.5 per cent of its advances valued at Rs 359 crore. Thepoor performance of the bank was largely due to management problems.

Earlier, Bangurs, who were controlling the bank, encountered financialproblems and pledged their holdings in BoR with Tayals of Shree Krishnagroup. Finally, with Bangurs unable to honour their commitments, the shareswere transferred to Tayals, thus the change in management.

The bad loans accompanied by management problems led to erosion of thebottom line.

Sources say that the previous promoter group companies have defaulted onloans worth over Rs 50 crore and the bank has filed criminal cases againstthem.

Since current market price of BoR shares are hovering around Rs 20 and themarket is little averse towards the banking sector, the investors willwitness some selling pressure on listing. This pressure will wipe out themargin available between the current market price and issue price. But thedirectors are confident that the issue will be fully subscribed because thebank has underwritten the issue for an amount of Rs 46.65 crore and thecurrent promoters - PK Tayal of Shree Krishna group have deposited Rs 20crore under the instruction of RBI for any shortfall in the mobilisation.

It is interesting to note that most of the underwriters are financially in abad shape. The underwriters had given their acceptance in March 1999 whenthere was good market for bank issues. It would be a difficult task for thebank to make these underwriters subscribe to the shortfall if any. It isworthwhile to remember the rights issue of Cipla, which had a problem withunderwriters and it took years for the company to solve the problem. Even ifthe underwriters bring in the money, they will try to encash their shares atthe earliest there by enhancing the pressure on the share price.

The current promoter may have good track record of making consistent profitsin their core companies but banking business is very competitive and withhigh NPAs accumulated over the years upside potential for the share price,if any, will be very meagre. It is not worth taking the risk. Avoid.