Thanks to the sagging investor confidence, around 15 banks, which have IPO plans, are currently apprehensive of entering the market. "Several banks have plans to enter the market. But they have been deferring their IPOs for fear of investor wrath," PRIME Database's Prithvi Haldea said. However, since the government is reluctant to help these banks meet their capital adequacy ratio and they exhausted the tier-II capital limit, most of the banks are hard-pressed to take the equity route, he said.

Overstaffing, piling non-performing assets and low technology usage coupled with large and unprofitable branch networks have taken their toll on bottomline of several banks, particularly in the public sector.

"Traditional banks have a lot of skeletons in their cupboard. Most of the banks are grossly overstaffed and are badly managed. Their balance sheets hide more than they reveal," Mr Haldea said. Investor confidence has also been shaken due to the government's decision to retain control over public sector banks (PSBs) even after disinvestment. The recently listed Indian Overseas Bank and Vijaya Bank have received poor retail investor response.

In line with the general market mood, both these banks are currently trading below their offer prices, denying any exit opportunity for investors. Worse, investors are suffering several crores of capital erosion in banks like Dena Bank, IndusInd Bank, State Bank of Travancore, State Bank of Bikaner & Jaipur, South Indian Bank, City Union Bank and Jammu & Kashmir Bank. So many of them have been stuck with their investments for several years.

Biggies like Bank of India and Bank of Baroda, which had raised over Rs 1,500 crore from the markets, are proving to be a bane with a combined capital loss of over Rs 800 crore. The stocks are currently trading at a discount of 68 per cent and 41 per cent to their offer price respectively.

Nevertheless, both these banks had provided good exit opportunities for initial investors.

Some of these banks have, however, put forward plans to reduce their ballooning administrative costs and non-performing assets, specially after competition from new private sector banks. Some initiative has also be taken to downsize their work force and use technology for growth.