South Indian Bank scraps proposed Rs 400 crore share sale amid valuation dip

KOLKATA: Private sector South Indian Bank has scrapped its proposed Rs 400 crore share sale as a steady dip in valuation has upset its strategy to get maximum premium from investors. The decision was taken at a board meeting Tuesday.

It had announced the plan to raise capital through qualified institutional placement or QIP on July 16 after the share price hit Rs 35.05 on BSE on July 7 which is an all-time high.

However, the price plunged 23% in the last four months on concerns over the bank’s sustainability in earnings, forcing it to decide against the share sale plan at this point.“There is no urgency to raise capital for the bank. We will wait for the right time and right price. The issue has been shelved for the time being,” a top bank official told ETafter the meeting. The Thrissur-based bank's share price closed at Rs 26.90 on BSE, 3.24% lower than Monday’s closing.

“The bank’s margin has come under pressure. Its asset quality is also not as good as new generation private lenders,” said Vaibhav Agrawal, an analyst with Angel Broking. It is one of the oldest lenders in South India and came into being during Swadeshi Movement.

Higher provisions to cover bad loans has led a 40% drop in the net profit to Rs 76 crore in the second quarter to September 30. “Its gold loan business, once a driving force, has been falling over the last couple of years, impacting the profitability,” Agrawal said. These perhaps kept local investors away from the QIP offer. With foreign holding close to the sanctioned limit of 49%, the private lender are not able to sell it to the foreign investors as well.

However, the bank official said that capital adequacy ratio would be comfortable around 12% on March 2015 even without any fund raising.

The last time it had raised Rs 443 crore was in 2012 when it placed shares with eight investors.