Banks see loss in quicker IPOs

Securities and Exchange Board of India (Sebi) Chairman C B Bhave’s proposal to cut down time between the opening of a public issue and its listing from three weeks to about a week is giving jitters to companies planning mega issues and their bankers. The move could disappoint banks, which open escrow accounts to keep the initial public offer (IPO) application money till allotment of shares. The proposal to slash the IPO time limit could lead to lower interest income for banks from such accounts. The time-consuming IPO allotment system benefited escrow banks, which often deployed huge money collected through the IPO subscription into the call money market for a handsome 7-8 per cent return for over two weeks, admitted a banker. According to the Indian Companies Act, escrow banks are restricted from passing on the interest earned from the IPO money to companies. However, investment bankers are of the view that it has become a normal practice for banks to deduct IPO expenses from the interest rate income. They then pass on the remaining money to companies.