Both Allahabad Bank and Canara Bank are in the race to acquire United Western Bank, UWB. C Mahajan, CMD of Allahabad Bank and MBN Rao, CMD of Canara Bank extrapolate on the benefits of taking over UWB.
Mahajan says that they have offered to take over UWB, but have not submitted any financial bid till now. He adds that UWB offers great opportunity to expand in Maharashtra. He further states that it is too early to talk about the swap ratio for UWB shareholders.
Rao says that depositors will be given first preference and they can decide on shareholders only after the due diligence. He adds that shareholders would get their bit in case of surplus after adjusting the Non Performing Assets, NPAs.
Excerpts from CNBC-TV18's exclusive interview with C Mahajan and MBN Rao:
What exactly will you tender in terms of an expression of interest? Would it be a financial bid or just a kind of restructuring synergistic proposal to Reserve Bank of India after which you will take care of the interest of the depositors of UWB?
Mahajan: We have shown our interest to take over the bank. Reserve Bank of India has only asked us to show an expression of interest and give them the expression for the takeover. We will talk to Reserve Bank of India about the formalities and modalities to be followed.
At the moment, we have not given any financial bid. We have only shown our interest to take over, based on our strength and our need also to expand our branch network in Maharashtra, where we have a very scanty presence, though the bank has got more than 2000 branches.
Most of our branches are concentrated in eastern India and Uttar Pradesh. So it is a very good opportunity for us to expand our network in Maharashtra. If one sees our network, we have very less rural branches in Maharashtra. We are trying to expand organically in Maharashtra and southern states, but it's a long way to go.
Hence, it is a good opportunity because United Western Bank has many rural and semi-urban branches. Having our own experience of rural and semi-urban branches in eastern India and UP, we feel that we can leverage well to expand our agriculture, rural credit as well as SME credit.
Hence, we have shown our interest; it will help us to expand our network in Maharashtra, where we have scanty presence and also, we will able to expand our synergies there.
From now, until when RBI makes its final decision, will any of the banks have to submit a financial bid as well or just expression of interest?
Mahajan: When we will talk to them, whatever the RBI minimum benchmarks are; we will take a call and we will try to meet those minimum benchmarks.
At any point, would you be open to offering any kind of a swap ratio for the shareholders of United Western Bank?
Mahajan: It is too early to talk about that right now. I have said that we will take a call on whatever comes. We will take a call; we are very open. We are interested because it is a very good buy for us and a good merger proposal.
It is a very good opportunity for us and we would like to make use of this opportunity.
As part of Canara Bank's offer, are you looking at any sort of offer for shareholders or a swap ratio at this point?
Rao: Of course, our board has decided to convey our expression of interest to RBI and we have conveyed it. Once the decision is made, we need to do a very detailed due diligence. Thereafter, we will be able to decide the value of the bank and how much is due.
First and foremost, the depositors' interest has to be protected and thereafter, if there are any creditors. If there is any residual value, definitely the shareholders will get it.
How long would it typically take because we were just talking to the former Chairman of Oriental Bank of Commerce who took over Global Trust Bank and we learnt that it was a period of 12 years to ascertain whether there was any residual value for the shareholders of Global Trust Bank? What period would you typically need to ascertain this?
Rao: In fact in this particular case, according to the published figures as of June 30, 2006, their net NPA is about Rs 200 crore (Rs 2 billion). So after a due diligence, we need to necessarily arrive at what exactly is the actual amount of the net NPA. Out of that, we need to see the underlying securities, which would help us in recovering the NPAs.
Thereafter, we would know whether there is a deficit or surplus. Of course, if it is a deficit, then definitely shareholders will not be getting anything. If there is a surplus, definitely by all means, shareholders would be getting something.
With the NPAs that you have collated, what sort of impact will it have on a bank like yours, if indeed you are the one who is chosen by the RBI?
Rao: In fact, Canara Bank's balance sheet is over Rs 2 lakh crore (Rs 2 trillion). And here, we are talking of a
bank with a balance sheet of about Rs 10,000 crore (Rs 100 billion). In terms of bank network also, we have 2,539 branches, while United Western Bank has 230. So in terms of size, it would not create any adverse impact.
There will be a positive impact because we already have a presence in the state of Maharashtra with about 198 branches. More than 100 of our branches are outside the metros. So it is not that there is an opportunity that we are entering Maharashtra. We have been interested in Maharashtra for a long time. This takeover is more long-term and strategic.
It will add to more of our rural and semi-urban branch network, where Canara Bank has expertise in; like in agriculture, SMEs and social banking. So we would be able to add value to the bank and to the customers.
So I am sure more than anybody else, the customers of the branch and the bank would be getting the benefit, In fact, the area as a whole, Maharashtra will get the benefit of a progressive modern bank like Canara Bank coming and participating in the rural and semi-urban areas.
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