Industrial and Development Bank of India (IDBI) which has won the race for acquisition of ailing United Western Bank (UWB), held a board meeting on September 21 to discuss the Reserve Bank of India's (RBI) draft scheme for amalgamation, even as global rating agency Standard & Poor's has warned that UWB's huge bad loans may affect the acquirer's financial profile negatively.
On September 12, India's central bank, the Reserve Bank of India (RBI) proposed a draft scheme to IDBI for amalgamating the under-moratorium bank with itself.
As per the draft scheme, IDBI will have to make an upfront payment in cash of Rs. 28 per share in respect of every fully paid-up share in UWB to investors as on prescribed date, which will be decided by the government later.
Market sources said IDBI will have to pay Rs. 150.50 crore to the UWB shareholders and assume the assets and liabilities of UWB according to the conditions in the proposal.
This is the first instance in India where an acquirer bank, IDBI, is required to compensate the shareholders of a bank under moratorium.
Payment made to UWB investors will be considered as provision for bad debt, the scheme elaborated.
IDBI will discharge all payments to creditors and depositors of UWB while the employees will continue in service and will be transferred to IDBI, the scheme said.
Both the banks have been given two weeks' time up to September 27 to consider the draft scheme, after which RBI will take a view on the future set-up of UWB.
UWB too is likely to decide the date of its board meeting soon.
UWB's huge pile of bad debts may affect IDBI's financial profile negatively, Standard and Poor's (S&P) has warned.
However, the rating agency added that there is no immediate impact on IDBI ratings after Reserve Bank cleared a merger proposal between UWB and IDBI.
The rating agency has a BB+/Positive rating on IDBI, a public sector bank.
S&P will continue to monitor the impact on IDBI's financial profile.
UWB's branch network in the affluent western Maharashtra region and its wide depositor base is expected to boost IDBI's distribution network and grow its retail portfolio.