The Hindu Business Line : UWB takeover: Management bandwidth for NPAs must

It may be unprecedented in banking history that so many banks are running around a musical chair called UWB (United Western Bank). If you are clueless as to the reason for the heightened interest, Mr Viren Mehta, Director, Ernst & Young, explains that the spurt in interest is essentially due to the branch network, and not necessary the customer base or technology.

"UWB is strong in Western Maharashtra. So, banks that are not strong in that area may like to partner. Let us not forget that the region is one of the more prosperous sections in the State," he says. "Banks such as ICICI Bank which are focussing on rural and agricultural finance may find this channel effective to dispense credit."

Mr Mehta concedes that setting up 100 to150 branches may not be a big deal for the larger banks. "But they may not get license from the RBI for opening branches," he explains. Does this situation, therefore, raise questions about the current scheme of licensing? Mr Mehta wouldn't agree. "Licensing is required to meet the social cause," he reasons.

As for what can make an intelligent bid, he says that the acquiring bank should first make a `clever assessment of the NPA (non-performing asset) level' in UWB. Also, the prospective acquirer should assess its capacity to absorb the target's NPA without hampering own working. "Management bandwidth to handle the NPAs is essential," insists Mr Mehta.

What about the big debate whether shareholders should get any value? "UWB has real estate, but the net worth is negative. And the RBI would generally take the call that depositors get paid first. Then come shareholders, if there is anything left," elaborates Mr Mehta.

On the mechanics of the process involved when a bank goes about joining the takeover race, Mr Mehta explains how the starting point is board approval, after which they inform the RBI of their wish to take over the bank, as an `Expression of Interest'.

"Banks make a case of how far there would be synergies. There is no due diligence at this point," states Mr Mehta. "The central bank may shorten the December 1 moratorium. Before firming up a takeover, the RBI can impose conditionalities such as that staff of the target bank shouldn't be retrenched."

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