The government has roped in state-run banks and insurance companies to ensure that the market offerings of public sector undertakings sail through.
Though executives at these banks and insurance companies officially said the decision to invest in these issues was driven purely by commercial considerations, some admitted in private that there was pressure on them to put money into PSU issues.
The government holds the majority stake in all state-run banks, while insurance companies are wholly owned by the government.
Banks are allowed to invest up to 5 per cent of their advances in stocks. They can invest big in these issues because their exposure to the capital market is far less than the stipulated limit. "Theoretically, they can put in money to make all the issues a success," a banking sector analyst said.
By and large, public sector banks stay away from the capital market. Though some of them have made money in equity trading in the current financial year, they have never been big players. The Life Insurance Corporation of India, in contrast, is always in the market.
At present, there are three issues in the market, those of IPCL, CMC and IBP. Three more issues, those of Dredging
Corporation, GAIL and ONGC, will open between February 26 and March 5. The IPCL issue, which opened on February 20, will close on February 27, while the CMC issue opened on February 23 and will close on February 29. The IBP issue opened on February 23 and will close on March 1.
IBP has been the worst affected in the current bear run with only 27 per cent of the issue being subscribed. The CMC issue has been oversubscribed 3.47 times, while IPCL has been oversubscribed 1.94 times.
The issue of Dredging Corporation, which opens tomorrow, will close on March 4. The Gail issue will open on February 27 and close on March 5 and the ONGC issue will open on March 5. The Rs 10,000 crore (Rs 100 billion) ONGC issue is the biggest in recent times.