IDBI wins battle for United Western Bank

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To make upfront payment of Rs 28 for every fully paid-up UWB share

Our Bureau

Mumbai, Sept 12

Taking bankers by surprise, the RBI today announced the amalgamation of the sick United Western Bank (UWB) with IDBI Ltd.

The draft scheme for merger, placed in the public domain for comments, provides for IDBI making an upfront payment in cash of Rs 28 for every fully paid-up share held in UWB, costing a total of Rs 150 crore.

With the UWB scrip closing today at Rs 21.45 on the BSE, the IDBI offer seems an attractive bailout for shareholders. On Tuesday, the IDBI scrip closed at Rs 62.25, up 0.16 per cent.

Analysts said that this is probably the first time that the Central bank has taken into account the interest of shareholders.

SICOM, with a stake of around 10 per cent in UWB, plans to call a board meeting this week to weigh the buyout offer of IDBI.

The Maharashtra Government-owned body had picked up UWB shares at a price higher than Rs 28, according to Mr R.M. Premkumar, Chairman of SICOM.

He refused to disclose the purchase price. "We will try to negotiate a higher price with IDBI, if possible," he added, while ruling out time-consuming court appeals.

Low net NPAs and high capital adequacy ratio "seem to have made us favourites," said a senior IDBI official.

However, the moratorium has not been lifted.

The two banks have been given time till September 27 to consider the draft scheme. Effective from September 2, employees on the rolls of UWB will wear the IDBI tag.

UWB was placed under a moratorium on September 2 on the RBI's advice, igniting a scramble for ownership of the Satara-based bank.

The Central bank got expressions of interest from 17 entities for taking over or restructuring UWB.

IDBI currently has 180 branches and 400 ATMs, while UWB has 230 branches, 12 extension counters and 75 ATMs. IDBI has around 4,500 staff while UWB has on around 3,000 employees, lifting the total labour force to 7,500.

As of June 30, 2006 IDBI's net NPAs stood at 1.02 per cent, while the capital adequacy ratio was 14 per cent.

In 2005-06, UWB posted net loss of Rs 106.48 crore and Rs 6.08 crore for the quarter ended June 30, 2006.

The capital adequacy ratio was minus 0.3 per cent against the prescribed minimum of nine per cent.

As on July 31, 2006 the gross NPAs stood at Rs 493 crore (13.84 per cent), while net NPAs amounted to Rs 201 crore (6.16 per cent).

In August, the RBI levied a penalty of Rs 5 lakh on IDBI for violation of know your customer (KYC) norms and guidelines relating to IPO financing.

This ruling possibly restricted it from opening new branches. IDBI has now added 230 branches to its network, courtesy UWB.

A few bank Chairmen seemed a bit upset over the RBI decision. Mr V. Sridar, Chairman and Managing Director of UCO Bank, said: "It is disappointing for us as UWB was a very good buy.

"But the RBI might have considered all aspects for selecting the winner. If similar opportunities come up we are open to acquisitions in the future."

Mr M.B.N. Rao, Chairman and Managing Director of Canara Bank, said: "It would have been a good fit for both Canara and UWB but we accept the RBI decision as they must have evaluated the pros and cons before offering the bank to IDBI."

Related Stories:
UWB and issues of bank rescue
Over a dozen banks in fray for UWB takeover
United Western Bank: A failure well flagged
An old bank that came under the axe too fast

(This article was published in the Business Line print edition dated September 13, 2006)
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