The cost of acquiring GTB
By Pradeep Rane | 27 Jul 2004
For the merger, the Oriental Bank Commerce is expected to acquire around Rs47.5 billion of total standard assets, against liabilities of Rs60 billion, leading to a shortfall of Rs12.5 billion. Of this, OBC will save Rs6 billion through a tax-break, but it will have to fill the gap of Rs6.5 billion, at the time of the merger, which can be considered the cost of acquiring GTB.
OBC officials say that 40 per cent of the bank's gross non-performing assets (NPAs), which is estimated at Rs17.50 billion, are recoverable. In the event of 40 per cent recovery over the next two years, the acquisition cost translates to nil. In the event of nil recovery, OBC may have to take a hit of Rs6.5 billion, to be offset by the money value of the time saved for expanding its network and client base, to the extent offered by GTB.
The credit book of GTB is estimated to have gross advances of Rs32 billion, of which Rs17.5 billion are estimated to be sticky and would require provisioning / write-offs, leaving a balance being Rs14.5 billion. On Saturday, July 25, RBI announced a moratorium for GTB and the government on Monday, July 27, proposed to merge the Hyderbad-based bank with the Delhi-headquartered OBC.
GTB's liabilities through deposits are around Rs58 billion and another Tier-II borrowings of around Rs2 billion. GTB is estimated to hold around Rs28.5 billion of SLR and CRR. Moreover, it also carries Rs4.5 billion of fixed and other assets, which could actually be worth more in terms of market value.
According to the Mumbai-based Enam Securities, OBC will benefit from the acquisition as it would take-over more than 100 branches and over 250 ATMs along with a customer base of around a million. While OBC is ready to absorb the approximately 1,250 employees, a substantial part of the staff may decide to quit. OBC will also get access to GTB's technology platform, which is among the best in the industry and will be easily adapted by OBC.
