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Rediff.com  » Business » United Western Bank to merge with IDBI

United Western Bank to merge with IDBI

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Last updated on: September 13, 2006 10:04 IST
The Reserve Bank of India told IDBI on Tuesday to acquire the distressed United Western Bank, which the central bank had put under moratorium by the RBI on September 2.

In the process, IDBI bested a long line of suitors, including Canara Bank, ICICI Bank, Citibank, Standard Chartered Bank, and a consortium of HDFC and the State Industrial Investment Corporation of Maharashtra.

Since IDBI is adequately capitalised, it will not have to pump money into United Western Bank, which has a net worth of Rs 70 crore (Rs 700 million).

However, IDBI will have to pay United Western Bank shareholders Rs 150.55 crore (Rs 1.5 billion) at Rs 28 a share, which works out to a 31 per cent premium over United Western Bank's closing price of Rs 21.45 on the Bombay Stock Exchange on Tuesday.

Both banks have till September 27 to consider the amalgamation scheme. The board of United Western Bank is likely to meet on Wednesday or Thursday.

With United Western Bank in its kitty, IDBI's branch tally will swell to 425 from 195 now. The merger will also expand IDBI's asset base by Rs 7,166 crore (Rs 71.66 billion).

IDBI will have to open an 'asset account' for crediting the value of the assets of United Western Bank.

We'll make UWB a strategic unit: IDBI chief

Reacting to the development, Maharashtra Chief Minister Vilasrao Deshmukh said, "We will discuss the issue in the Cabinet and decide on our course of action."

As a way out of the moratorium, United Western Bank had proposed a Rs 350 crore (Rs 3.5 billion) health pill jointly administered by the Maharashtra government, SICOM, HDFC and HDFC Bank.

Asked whether the state government was considering challenging the RBI's decision in court, Deshmukh said, "Legal options are always open."

R M Premkumar, chairman of SICOM, the largest shareholder in United Western Bank at 10.7 per cent, said it would negotiate for a good price because it still had time to contest the clauses of the amalgamation.

The valuation of assets and liabilities will be binding on both banks and their shareholders and creditors. All employees of the distressed bank will continue in service and be deemed to have been appointed in IDBI Bank at their current pay and perks, the draft scheme says.

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BS Reporter in Mumbai
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