The Hindu Business Line : IOB sees big gains from Bharat Overseas buy-out — Wider branch network, stronger presence in Asia

Branch expansion and Bangkok operations are the twin major advantages that Indian Overseas Bank believes it will get through the proposed takeover of Bharat Overseas Bank Ltd.

IOB's Chairman and Managing Director, Mr T.S. Narayanasami, told Business Line that following a recent guideline of the RBI, a bank may relocate its branches within the same city.

As such, all the branches of BhOBL that are close to IOB branches may be shifted elsewhere in the city or town. "This is like getting fresh 30-40 branch licences," Mr Narayanasami said, adding that getting that many branch licences otherwise could take about two years.

In addition, IOB will get a branch in Bangkok, which wil

Answering a question, he said BhOB would be a wholly-wned subsidiary of IOB for the time being — until the central bank of Thailand clears Bangkok branch's licence under the changed ownership. As such, the Rs 170-crore that IOB will pay for the takeover will be treated as an investment under treasury operations and will not impact the profit and loss account.

(Analysts observe that the price of around Rs 170 crore is attractive, and is about 1.2 times the book value of Bharat Overseas Bank, while most banks are trading at over 1.5 times the book value. They say that when eventually BhOBL would be merged with IOB, a goodwill account will have to be created as the buy-price is more than the book value of BhOBL, which will have to be charged to the profit and loss account over some years.)

Eyes 20% growth in Q1 net

In the first quarter of the current year, Mr Narayanasami had estimated that the bank could end the year with a net profit of Rs 750 crore.

Asked about it, he said considering the performance in the first three quarters, "there is every reason to expect that the bank's net profit would record a growth of not less than 20 per cent." IOB's net profit for 2004-05 was Rs 651 crore. Mr Narayanasami, however, cautioned that the any hardening of interest rates would cause a depreciation charge.

Mr Narayanasami ruled out any possibility of the bank tapping the capital market for funds. On Wednesday, the bank announced raising Rs 300 crore through long-term bonds, which exhausts the scope for raising further Tier-II capital.

However, in the current year, the bank expects to transfer Rs 600 crore to investment fluctuation reserve. This would create a headroom of raising Rs 300 crore of Tier-II capital. Further, IOB expects retained earnings of around Rs 400 crore, which would count for Tier-I capital. This in turn, would raise scope for Tier-II capital.

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