The rush for United Western Bank

Rex Mathew
08 September 2006

More than a dozen banks are willing to acquire the troubled United Western Bank and its stock has recovered after it crashed 50 per cent on Monday morning. Is this pure speculation or is there some value left?

It was during the last weekend that the central government imposed a moratorium on the Maharashtra-based United Western Bank (UWB). On Monday morning, UWB's stock slumped more than 50 per cent before recovering and closed with losses of more than 30 per cent. Since then, the stock has been on an up trend and has regained almost all of its losses and has gone back to previous week's closing levels.

Stock broker Pradeep Bhavnani, a member of the NSE, has picked up a 7-per cent stake and is planning to raise it to between 15 and 20 per cent. There are market rumours that some other individuals and traders have also built up huge positions in UWB.

Based on past experiences, shareholders of failed banks stand to lose all or at least most of their investments. But in the case of UWB, traders are surprisingly willing to bet on the stock even with all the risks and uncertainties. Why this heightened interest in a failed bank with operations limited mostly to Maharashtra?

Large number of suitors
The main reason for the traders' interest in the stock is the large number of banks and others who are interested in acquiring UWB. Parties who are interested in acquiring and restructuring UWB have been asked to submit their proposals to the RBI. Since then, more than a dozen prominent banks have submitted letters of interest to the RBI for acquiring UWB.

Those who have already expressed their interest include ICICI Bank, IDBI and Canara Bank. Among the smaller banks, Andhra Bank, Federal Bank, Allahabad Bank, Corporation Bank and Bank of Maharashtra are interested. A few foreign banks like Citibank and HSBC are also reportedly interested.

The government of Maharashtra has also jumped into the fray to avoid a home-grown bank falling into alien hands. The state government has roped in HDFC and IDFC to submit a joint proposal with a fund infusion of Rs 350 crore. The state government is willing to put up Rs 210 crore and its investment arm SICOM will contribute another Rs 70 crore. HDFC Bank is willing to pump in Rs 70 crore for a 20-per cent stake while IDFC is ready to invest Rs 35 crore.

Interestingly SICOM holds a slightly over 10-per cent stake in United Western Bank, while HDFC holds 10 per cent in SICOM.