Established in 1907 as Satara Swadeshi Commercial Bank, United Western Bank (UWB) was converted into a scheduled commercial bank in 1951. With majority of the branch infrastructure in Maharashtra, the bank has considerable penetration in the rural segments of the state and offers ready infrastructure to financial entities looking to expand their scale in this region. While the public shareholding in the bank stood at 54% at the end of 1QFY07, SICOM is the principal shareholder with more than 10% stake.
UWB had, during the last 5 months, made a bonus and rights issue to shore up its capital adequacy, which has become negative (- 0.3% in 1QFY07) due to consecutive losses in the past 8 quarters. The bank that was under Reserve Bank of India (RBI) supervision since 2001, posted losses in FY05 and FY06 largely due to NPA and investment provisioning. Nonetheless, it should be noted that UWB's NIMs at 2.2% in FY06 were barely 20 basis points lower than that of ICICI Bank.Also, while UWB may continue to take NPA provisioning, bond losses are likely to be low as the interest rates stabilise.
As the bait seemed more and more attractive, the likes of ICICI Bank, Canara Bank, Federal Bank, Andhra Bank and Standard Chartered have made a beeline as suitors to acquire the ailing UWB. However, the government has recently stepped in with a proposal to fund the restructuring of the regional bank (in consonance with SICOM and HDFC). ICICI Bank believes that UWB's network of branches and extension counters can be leveraged to grow its rural and SME banking operations in particular, and overall distribution franchise in general.
Unlike the fate of GTB, which was merged with OBC, the Maharashtra government seems to be very keen on retaining 'the Maharashtra identity' of the bank, which will not be feasible post merger with a bigger bank. Given the government's stake in the bank through SICOM, it seems to be unwilling to accept the same fate as that of the GTB shareholders. All said, it need to be acknowledged that a comparison of UWB with GTB clearly shows that the former stands on a much more sound footing at the time of moratorium.
Cost / Income (%)
Gross NPA / Advances (%)
Net NPAs / Advances (%)
Buisness / branch
* Figures at the time of moratorium
We believe that the RBI's initiative to bail out depositors of defunct banks by way of placing the banks under moratorium and later merging them with stronger entities will stand in good stead for the reputation of the regulator in the long term. However, it is desirable that the merger of such banks must be crystallised based on market-determined valuations and sold to the highest and most desirable bidder (which will be able to unlock synergies from the ailing entity), so that the minority shareholders of the bank get a fair deal and it is also in the interest of consolidation in the sector.
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