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UTI Bank looks for strategic partners - Views on News from Equitymaster
 
 
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  • Nov 22, 1999

    UTI Bank looks for strategic partners

    The UTI Bank is planning to offer equity to strategic partners. The Bank is simultaneously drawing out plans to acquire other banks in a bid to expand.

    India's private sector banks have witnessed the entry of a large number of new entrants over the last few years. This has led to an increase in the intensity of competition. This is evident from the decline in the return on assets of the new private sector banks from 1.85% in FY96 to 1.03% in FY99. The decline in profitability may have tempted UTI to look into the possibility of inviting a strategic partner and also acquire other banks.

    A strategic partner would bring in much needed capital into the bank to aggressively pursue growth opportunities. Moreover, with technology being a key determinant of overall profitability, UTI could benefit from a more technologically adept partner.

    The plan to acquire banks to generate growth also seems to be logical. This is so because in order to build a large network the bank would require time and this may cause it to miss the likely emerging credit boom on the country.

    A consolidation of the private banks seems imminent. India has witnessed the entry of 9 private sector banks since FY95. A number of these banks presence in only a select large cities as they do not have access to resources to expand aggressively into the smaller towns and cities. Moreover, there is a pressure of the increasing capital adequacy ratio to 9% by 31st March 2000 and 10% by 31st March 2002.

    The decision to look for a strategic partner and also pursue a strategy of acquisitions is in the right direction as it will possibly lead to the creation of a larger bank with access to greater resources and market reach.

     

     

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