The board of ICICI Bank on Monday approved to submit its expression of interest to Reserve Bank for amalgamation of United Western Bank with itself.
ICICI Bank believes that UWB's network of over 240 branches and extension counters can be leveraged to grow its rural and SME banking operations in particular, and its overall distribution franchise in general, an official of the bank said.
Canara Bank and Andhra Bank have also joined the race to acquire United Western Bank. It may be noted that ICICI Bank and Federal Bank were the first ones to express their intention to acquire United Western Bank.
If ICICI Bank takes over United Western Bank, it will be its second major acquisition, having bought the Bank of Madura a few years ago, which established its presence in south India.
The central bank had on Saturday placed United Western Bank under a moratorium till December 1 to protect its depositors, saying the aim was to merge it with a stronger bank.
There are other suitors for United Western Bank as well. While Corporation Bank is understood to have informally sounded out the RBI in this regard. Sicom, a Maharashtra government undertaking, is also interested in taking over United Western Bank, in which it already holds a stake.
Executives of Union Bank of India and Bank of India, however, did not express much interest in United Western Bank, as it would not provide them any geographical advantage. In terms of capital, in fact, it would be a strain on them since both had to raise capital for meeting post-Basel II requirements, they added.
Although United Western Bank was struggling financially, with its bad loan ratio at 5.66 per cent, compared with its peers' 1.97 per cent, it had the right infrastructure - 230 branches in nine states - to power growth for ICICI Bank, analysts said.
Also, its reach in western India could help ICICI Bank access funds at lower costs in small towns than in cities where it is strong.
The RBI placed United Western Bank under a moratorium after it reported a net loss of Rs 6.08 crore (Rs 61 million) for the quarter ended June 2006, a negative (-0.3 per cent) capital adequacy ratio, and net non-performing assets of 6.16 per cent. It had been under monthly monitoring since June 2001.
The RBI said "inefficient management" had allowed the bank's capital to risk weighted assets ratio to turn negative, and bad loans to rise much above the levels of its peers.
The RBI has in the past placed weak banks under moratoriums before finding the right partner to merge them with. It merged Global Trust Bank with Oriental Bank of Commerce and the Nedungadi Bank with Punjab National Bank. A more recent case is of Ganesh Bank of Kurundwad Ltd being merged with Federal Bank.
This time, too, the central bank is in favour of a PSU bank acquiring United Western Bank.
"Generally, a preference is given to public sector banks (for merger)," RBI officials told reporters on Saturday.
The RBI has appointed S K Gogia and Y Radhakrishnan as its nominees on the board of the bank to assist the management committee in finding it a suitable partner.
Addtional Inputs: Business Standard
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