Bank buys Are flavour of the season
After snapping up United Western Bank (UWB) from an array of suitors, IDBI Bank is clearly bracing for something more. It has set sights on another acquisition of a small South-based bank by this year end.
“The bank will acquire a South-based bank with 50-60 branches by the end of this calendar year. It makes enormous sense for us, since we would not have to invest in developing a branch network to mobilise low-cost deposits,” a source at IDBI Bank said. When contacted, VP Shetty, chairman, IDBI Bank, refused to comment on the issue.
Sources said IDBI Bank has limited branch presence for an asset base of Rs 90,000 crore. So to that extent,acquiring a small bank will give it a larger footprint.
Though the bank can capitalise on its history as a Development Finance Institution, with expertise in project and long-term finance, its liabilities are not balanced. It does not have enough of low-cost liabilities, or deposits, sources said.
So, a larger branch network would give it a space to mobilise retail deposits to keep the cost of lending competitive. When IDBI was merged with IDBI Bank, it was understood that IDBI would not be converted into a commercial bank, but would undertake commercial banking activities, in addition to its Development Finance Institution functions.
Accordingly, banking activities, both development and commercial, are being undertaken under the IDBI umbrella. But the rationale for getting into commercial banking was primarily to raise low-cost funds.
It was only last week that the regulator picked IDBI Bank to take over the 230-branch United Western Bank, much to the surprise of other interested parties. This is the first instance in India where an acquirer bank — IDBI — is required to compensate the shareholders of a bank under moratorium.
Its merger with United Western Bank requires IDBI to pay Rs 28 per share aggregating Rs 150 crore, to take over the assets and liabilities of the ailing bank. The IDBI board meets on Thursday.
But sources pointed out that it still made tremendous sense to pay Rs 150 crore for 230 branches, since setting up a branch would have cost Rs 1 crore each. The bank inherits United Western Bank’s branch network in the affluent western Maharashtra and with a wide depositor base that will add to its retail portfolio
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