Heavy retail rush for 4 IPOs puts banking system under pressure

According to industry players, the many banks found it difficult to process the record 10 mn retail applications garnered, leading to higher failure rate, delayed OTP messages

The four initial public offerings (IPOs) that closed on Friday generated bids worth Rs 1.7 trillion and attracted over 10 million retail applications, putting severe strain on the banking system.

According to industry players, the many banks found it difficult to process the record number of applications at the same time, leading to higher failure rate and delayed OTP messages.

Even other market intermediaries such as stock exchanges and brokers saw unprecedented load, which led to extension in bidding time until 8pm.

For the first time since 2007, four IPOs, that of Devyani International, Exxaro Tiles, Windlas Biotech and Krsnaa Diagnostics, where launched on the same day.

Given the ongoing IPO frenzy, retail investors piled on to all the offers. The retail portion of the four issues was subscribed between 24 times and 40 times, until 6pm. Overall, subscription was between 22 times and 117 times for KFC and Pizza Hut franchisee Devyani International (see table).

Retail investors are individual investors investing up to Rs 200,000 in an IPO. Investment bankers said total retail bids for the four issues were in excess of Rs 17,000 crore.

“This is a record amount mobilised from retail investors on a single day. One can’t rule out a higher number of failures or application rejections,” said an investment banker handling one of the share sales.

Typically, 30 per cent of applications coming through the unified payments interface (UPI) route in any IPO are rejected as banks are not able to process them and also due to issues at the applicant’s end, such as multiple entry, name and PAN mismatch, and non-acceptance of payment mandate.

Industry players said the huge demand from high-networth individuals (HNIs) raised borrowing rates for NBFCs.

“NBFCs that provide funding to HNIs didn’t anticipate such a demand. This led to liquidity crunch and raised borrowing rates on commercial papers by 200 basis points,” said an industry official.

Devyani International’s IPO was subscribed more than 200 times in the HNI category, while Krsnaa Diagnostics was subscribed 116 times.

Analysts said the listing gains given by the recent IPOs had made retail investors exuberant to the point of overlooking company fundamentals. The four companies to list, before Glenmark Life, have seen gains of between 65 per cent and 113 per cent on the first day.

Investment bankers are bracing for another busy week with IPOs of Nuvoco Vistas Corporation hitting the market on Monday and that of Aptus Value Housing Finance India, Chemplast Sanmar, CarTrade Tech on Tuesday.