labels: icici bank, united western bank, m&a, banks & institutions
ICICI Bank may be frontrunner in acquiring United Western Banknews
04 September 2006

The ICICI Bank Board met today to approve the submission of an expression of interest to Reserve Bank of India (RBI) for amalgamation of United Western Bank (UWB) after the order of moratorium announced by RBI.

In adition, Federal Bank, Andhra Bank and Allahabad Bank have also indicated an interest in acquiring the bank, while according to CNBC-TV18 Canara Bank has already submitted an expression of interest to Reserve Bank of India (RBI) to acquire UWB.

HDFC Bank, however, says it is not intersted in acquiring the bank.

The suitors believe that UWB's network of 229 branches and 14 extension counters can be leveraged to grow their rural and small and medium enterprise banking operations in particular and overall distribution in general.

According to reports the second-largest bank and the largest private-sector bank in India, ICICI Bank has emerged as the front runner in the acquisition sweepstakes.

According to Standard & Poor's Ratings Services its foreign currency ratings and outlook on ICICI Bank (BB+ / Positive / B), are not immediately affected by the bank's announcement of its intention to submit a bid for United Western Bank Ltd.

RBI had announced a moratorium on UWB after its regulatory capital adequacy ratio turned negative at 0.3 per cent as at June 30, 2006, and it was unable to meet the 9 per cent regulatory minimum capital adequacy ratio.

As at March 31, 2006, deposits in ICICI Bank and UWB stood Rs1,724.51 billion ($37.23 billion) and Rs64.81 billion, respectively.

But as of March 31, 2006, UWB had net bad loans of Rs227 crore, tax disputes of Rs45 crore, restructured assets of Rs550 crore, and net worth of Rs114 crore. However, in cases where a moratorium is imposed, there are no immediate cash outflows.

Experts say that the acquirer may have to infuse up to Rs300 crore.

If ICICI Bank is successful in its bid for UWB, Standard & Poor's will have to evaluate the impact on ICICI Bank’s financial profile, especially its capitalisation.

The RBI's recent record has been that banks it puts under moratorium find a suitor in the next 48 hours. It was true for Ganesh Bank and Global Trust, and now it is true for United Western, says CNBC-TV18.

Going by past experience, UWB shareholders may not get anything, but depositors should see an early end to the moratorium.

Under RBI rules, the central bank alone decides who is the suitor amongst those interested in the acquisition . This is done on the basis of the strengths of a suitor's balance sheet and synergies.

Meanwhile, the United Western Bank management is assuring account holders that deposits are safe. But bank officials admit that the moratorium order is because the bank failed to meet capital adequacy ratio norms.

A R Kulkarni, GM, UWB says, "It may be due to RBI's capital adequacy norms. It should be 9 per cent, but in our bank it is on the lower side. That may be the reason that RBI has implemented this moratorium."

(See: )

also see : Still keen to take over UWB: Vijay Kalantri

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ICICI Bank may be frontrunner in acquiring United Western Bank