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Mumbai-headquartered Saraswat Co-operative Bank has zeroed in on an urban co-operative bank (UCB) in Karnataka for a possible takeover.
Mr E.K. Thakur, Chairman, Saraswat Co-operative Bank, said that his bank will sign a memorandum of understanding with the Karnataka-based UCB for the merger.
The target bank has 39 branches in Karnataka and a total business of Rs 350 crore. Mr Thakur, however, did not disclose the name of the bank, which is classified as ‘weak' as per the regulatory classification.
As per the Reserve Bank of India's classification, a ‘weak UCB' is one whose capital to risk-weighted assets ratio has fallen below 75 per cent of the minimum prescription or net non-performing assets are 10 per cent or more but less than 15 per cent of loans and advances outstanding as on March 31. Or shows net losses in operation for two years out of the last three consecutive financial years.
Growth strategy
In the last five years, India's largest multi-state co-operative bank resorted to acquisitions to grow business. Between 2006 and 2009, it acquired seven UCBs. These banks had cumulative business of Rs 1,700 crore.
With capital raising proving to be a constraint for UCBs, Saraswat Bank is banking on the proposed amendment to the Multi-State Co-operative Societies Act so that it can issue shares to members at book value instead of face value.
“Once the amendment to the Multi-State Co-operative Societies Act goes through we can augment our capital by issuing shares at book value. We can then issue shares at, say, Rs 150 instead of Rs 10 (face value). The amendment is expected to happen in the ensuing Parliament session,” said Mr Thakur.
Privatisation inevitable
Going forward, privatisation of Saraswat Bank is inevitable as avenues for raising capital to support future growth are limited in the co-operative sector, he added.
On the impact of the hike in repo rate and savings bank deposit rate, and the tightening of the provisioning norms for bad and restructured assets, Mr Thakur said his bank's net interest margin could get impacted by about 70-80 basis points in FY2012.
In FY2011, the bank reported an improvement in its NIM to 3.52 per cent, against 2.61 per cent in FY2010.
In the year ended March 31, 2011, the bank reported a 78 per cent increase in net profit at Rs 212 crore (Rs 120 crore in FY2010). Its business (deposits plus advances) in the reporting period increased by 16 per cent to Rs 27,313 crore (Rs 23,517 crore as of March-end 2010).
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