Falling Merchant Banking Fee May Affect Sbi Caps Profits

SBI Capital Markets Ltd, the merchant banking arm of the State Bank of India (SBI), has lead managed public issues worth Rs 6,000 crore in the nine months to December 1996, which is equivalent to last years corresponding level.

However, its receipts from fund management may be comparatively lower this financial year owing to a drop in merchant banking fees. SBI Caps managing director, A R Barwe, said yesterday the companys net profit may be marginally lower than the Rs 23 crore registered at the end of the last financial year.

Barwe attributed the likely fall in profits to the dull capital market but, more importantly, to falling merchant banking fees.

 

He said the difficult market conditions this year resulted in intense competition for business among merchant bankers, forcing the merchant banking fees downwards. He, however, added that the sluggish conditions did not affect the volumes that SBI Caps handled during the year, which at the end of the third quarter was approximately 24 per cent of the total funds mobilised from the market. Besides managing public issues, SBI Caps until December 1996, also aided corporates raise another Rs 1,600 crore via private placement routes.

Analysts say SBI Caps performed well in the current year when several merchant banking outfits were badly affected and laid off large number of personnel to beat the effects of shrinking business. SBI Caps lead managed practically all the big issues of the year, most of them offered by banks and financial institutions, like the Rs 1,000 crore ICICI issue, the Rs 850 crore Bank of Baroda offer and the Rs 180 crore Dena Bank issue.

In fact, the financial sector, mobilised nearly 65 per cent of the total resource mopped up from the market through public issues this year, reports Prime data base.

Prime data base said this trend is likely to continue through the last quarter of the year with such mega issues like the Canara Banks Rs 1000 crore offer, ICICIs Rs 750 crore and Corporation Banks Rs 250 crore set to enter the market.

According to Prime, total amount raised through public issues this year is: Rs 383 crore in April, Rs 1,257 crore in May, Rs 684 crore in June, Rs 2,111 crore in July, Rs 348 crore in August, RS 1399 crore in September, Rs 315 crore in October, Rs 574 crore in November and Rs 951 crore in December.