RBI decision a boon to IDBI, say analysts
Analysts see the RBI decision to hand over the sick United Western Bank to Industrial Development Bank of India as an unexpected boon for the latter. At one go, the public sector bank gets a branch network of 230 making its total number of branches to over 425.
More than the business potential, the branch network will help IDBI to raise low-cost funds by way of saving and current account deposits, said an analyst. Ms Sarika Lohra, Research Analyst, Angel Broking, said it is an excellent choice by the RBI.
Attractive proposition
"Given the size of IDBI’s balance sheet, this is an attractive proposition. In the light of the recent IPO scam, the RBI had restricted IDBI in terms of branch expansion. So, this is a boon for it, because, otherwise it would mean a loss of business opportunity," she said.
Low-cost deposits constitute just seven-nine per cent of IDBI’s portfolio and their net interest margin was just 0.5 per cent. So, IDBI needs to mobilise low-cost deposits to improve its cost of funds, she said. The price IDBI is paying is mainly for infrastructure (branch network) and inheriting the customer base. It is an expensive deal but IDBI requires the branch network.
There will be a cultural difference in terms of integration. It will be a challenge because after the merger of IDBI Bank with IDBI, it had been through a difficult period, she added. Mr Ananda Bhowmik, Senior Director with Fitch Ratings, said banks were now looking to expand their branch network and IDBI was currently building its retail strategy.
In terms of size, IDBI is far larger than United Western Bank and can take on such an amalgamation. Its capital position as well as asset quality has seen improvement in the recent past.
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