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IDBI's
rating unaffected for now from proposed merger of UWB
14
September 2006
 Mumbai:
Standard & Poor's Ratings Services said today
its ratings and outlook on public sector bank Industrial
Development Bank of India Ltd (IDBI, BB+ / Positive /
B), are not affected by the Reserve Bank of India clearing
a merger proposal between United Western Bank Ltd. (UWB)
and IDBI. (See: IDBI
gets United Western for Rs28 per share)
RBI
had announced a moratorium on UWB on Sept. 2, 2006, and
suspended its operations. (See: United
Western Bank placed under moratorium)
The
merger proposal requires IDBI to pay Rs28 $0.61 for each
UWB share, amounting to a total of Rs1.50 billion, and
to assume the assets and liabilities of UWB according
to the conditions in the proposal.
This
is the first instance in India where an acquirer bank
is required to compensate the shareholders of a bank under
moratorium.
UWB's
branch network in the affluent western Maharashtra region
in India and its wide depositor base is expected to boost
IDBI's distribution network and grow its retail portfolio.
The
Rs1.50-billion purchase consideration will have a negligible
impact on IDBI's reported shareholders' funds of Rs66.59
billion as at March 31, 2006. Standard & Poor's, however,
expects UWB's weaker asset quality to impact IDBI's financial
profile negatively.
UWB's
loan quality and recovery from its Re40 billion loan portfolio
is  a
concern, given its regulatory net NPL ratio of 5.66 per
cent as at March 31, 2006, is significantly above the
peer group average of about 2 per cent.
Standard
& Poor's will continue to monitor the impact on IDBI's
financial profile.
Other
reports on IDBI Bank
Other
reports on United Western Bank
General
reports on Banks
Other
reports on M&A
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