It's Time SEBI Brought These Five PSU Banks Under Additional Surveillance
While the regulator cannot do much about the minimum public float in PSU banks, it can curb volatility and stock price spikes driven by small trading volumes or block trades.
Shares of public sector banks have rallied and many have doubled in the last 12 months. But will a private sector publicly listed company enjoy the same leeway as the PSU banks while flouting minimum public shareholding norms?
It is true the regulator cannot do much about the minimum public float regulations, which are meant for all companies except public sector units. But what the regulator can do is curb volatility and stock price spikes driven by small trading volumes or block trades in at least five PSU stocks that are violating the minimum public shareholding: UCO Bank, Punjab & Sind Bank, Indian Overseas Bank, Central Bank of India and Union Bank of India.
While no one is raising any issue about the fundamentals of these five PSUs, low liquidity and volatile price movements is worrisome as small investors get lured by such sharp price surges.
For many new investors who may be unaware, these five stocks suffer from the 'Wipro effect' of the early 2000s. At that time due to low liquidity and shares largely held by the Azim Premji, the Wipro stock used to spike on low volume trade. Eventually, as the minimum public float guidelines came into effect, the liquidity improved attracting genuine institutional interest in the IT services provider.
Private companies not meeting SEBI's public float rule would have led to exchanges informing the depositories to freeze the shareholding of the promoters and eventual delisting. But these are government-owned banks and are governed by different regulations.
Securities and Exchange Board of India and stock exchanges have introduced pre-emptive surveillance measures to enhance market integrity and safeguard investor interest. These measures include reduction in price band, periodic call auction and transfer of securities to delivery-only 'trade for trade' segment from time to time.
But the regulator is looking the other way when it comes to these PSU banks.
UCO Bank share price more than doubled in the last 12 months and it rose over 14% on Monday. The volumes traded on NSE were 51% of the net free float of the company. While the delivery was just 20%.
Punjab & Sind Bank has risen over 145% in the last 12 months. It jumped rose over 7% on Monday with volumes on the NSE comprising of 68% of the net float of the stock. The delivery was 19.4%.
Such trading can be seen in IOB, Central Bank as well and to some extent in Union Bank.
While the regulator and stock exchanges are helpless in imposing curbs on the promoter holdings of these banks, they can surely bring price bands to check volatility and protect small investors.
Why should illiquid shares enjoy a 20% circuit in this market?
