Dec 24, 1999|
IDBI Bank courting Bank of Punjab for merger
The IDBI Bank, promoted by the Industrial Development Bank of India, is reported to be in talks with the Bank of Punjab, another new private sector bank, for a possible merger. The move follows the recent merger between HDFC Bank and TimesBank.
IDBI is India's leading development financial institution and the 10th largest development bank in the world. It has also promoted IDBI Bank, IDBI Capital Services, IIMCO (asset management) and SIDBI (for funding small-scale industries).
A merger is definitely warranted from the point of view of building size and scale of operations. This generates economies of scale that go a long way in boosting the profitability of banks. Moreover, there is an increasing shift towards universal banking that is putting pressure on specialised institutions to offer a wider range of financial products. For example, HDFC, the leader in domestic housing finance, recently launched consumer finance and is now looking at the possibility of merging HDFC Bank with itself. This will enable the institution to cross sell products - offer a one-stop shop for financial products.
Source: Reserve Bank of India, Anuual Reports
The merger of these two banks would dramatically increase the branch network and, in effect the retail reach. As a merged entity the bank would be in a better position to face the intensifying competition from other banks, which too are in a phase of restructuring. These include the HDFC Bank and TimesBank merger and talk of similar deals involving ICICI Bank, Centurion Bank and Global Trust Bank.
One prime concern will be the high level of net non-performing assets (NPAs) and the low amount of advances at the Bank of Punjab. IDBI Bank on the other hand would have to take measure to improve overall profitability.
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