State Bank of Hyderabad plans IPO

State Bank of Hyderabad (SBH), the wholly owned subsidiary of the country's largest bank State Bank of India (SBI), plans to launch its initial public offer in the second quarter of 2006-07.

SBI Capital Markets would be the advisor to the issue and presentations to merchant bankers would begin in about a couple of weeks, said Amitabha Guha, managing director of SBH.

SBH, headquartered in Hyderabad, is a mid-sized bank with total advances of Rs 21,264 crore and deposits of Rs 35,474 crore at the end of March 2006.

The book value of SBH shares of Rs 100 each was Rs 12,255 at the end of March 2006, up from Rs 10,236 at the beginning of 2005-06. Net of gross NPAs of Rs 453 crore, the book value of the bank's shares is Rs 11,800.

"The shares are proposed to be split into 10 shares of Rs 10 each, but the value per share would still be high. Our challenge will be to ensure how we make our IPO attractive," Guha said.

The government is likely to amend the SBI Subsidiaries Act in the monsoon session to allow splitting of shares of all SBI associate banks, increase the authorised capital to Rs 500 crore and remove the cap of 200 shares on single entity's holding in the associate banks.

The bank has equity capital of Rs 17.25 crore and its net worth is Rs 2,700 crore. "The size of the IPO is yet to be finalised. It will also be dependent on whether SBI (the bank's parent) will also want to offer a part of its shareholding for sale," he said.

SBH reported a 70.20 per cent year-on-year increase in net profit in 2005-06 to Rs 427.04 crore.

Its operating profit grew by 21.71 per cent to Rs 868.09 crore despite a one-time expenditure of Rs 96 crore for arrears of wages for the period November 2002 to March 2005. The bank's net interest margin was 3.25 per cent in 2005-06.

The bank's gross non-performing assets (NPAs) decreased to 2.13 per cent from 3.46 per cent a year ago and net NPAs declined to 0.36 per cent from 0.61 per cent a year earlier.