New IPO – Zero fees charged by investment bankers


In an event organised by merchant bankers on last Friday, Securities and Exchange Board of India (Sebi) Chairman C B Bhave had said investment bankers need to introspect whether it was healthy competition to quote near-zero fees to bag government issues.For example, reports suggest that six investment bankers had quoted a fee of Rs 12,500 to manage the Coal India issue that aims to mop up over Rs 13,000 crore next month.

Some of the bankers are not happy with the remarks of Mr. Bhave . They state that always rates quoted will be low for Govt issues compared to private companies IPOs as there is normally good response for Govt IPO.

There is some truth lies in the statement of Investment bankers. But success of Govt sponsored IPOs are backed by Govt in getting full subscription using the Investment institution like LIC etc. Otherwise, some of the govt issues would have gone as flop show. LIC which is using the public fund is not allowed to take independent investment decisions and in case if public IPOs , in the last minute LIC steps in to save the Govt by subscribing to the left out amount thus saving the govt and the investment bankers.

But this is not a good commercial practice. Also investment bankers should analyse their cost aspect in taking up IPO issue at throw away price. Definitely Rs.12500 for a marathon issue of 13000 crores is a petty amount and the costs will be more than revenue for any bank. Banks are answerable to shareholders and reasonable fees should be charged for any IPOs.

RBI should intervene in stopping this mad rush of competition to procure govt business at the cost of fees income. There should be minimum fees atleast to cover cost of IPos for investment bankers. RBI should think of some base rate for this also just like base rate for loans. This will go in long way to secure bankers from loading the customers by way of raise in fees thus compensating govt companies which we can call it subsidy in disguise. Cost is the main word for bankers to thrive in the current world of competition and when we are talking of going global, bankers should rethink on IPO charges also. Better sense prevails .

C. R. Venkata Ramani

(AICWA)

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