IDBI's rating unaffected for now from proposed merger of UWB
14 Sep 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.
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.
