India's central bank, the Reserve Bank of India (RBI) has approved the takeover of ailing United Western Bank (UWB) by IDBI, setting aside reservations of the Satara-based bank to the amalgamation scheme.

The amalgamation will come into force on October 3, 2006. All the branches of the United Western Bank will function as branches of Industrial Development Bank of India Ltd with effect from this date, RBI said in a statement here, adding that the ailing bank will no longer be under moratorium from October 3.

IDBI would pay Rs. 28 per share in respect of every fully paid-up share of UWB as on the prescribed date, RBI said.

The RBI press statement said that IDBI will be making necessary arrangements to ensure that service is provided to the customers of UWB.

The moratorium has caused lot of difficulties to depositors and several businessmen who found their funds stuck before the festival season. The RBI had allowed a maximum withdrawal of Rs. 10,000 per account during the period of moratorium which was imposed in early September.

It said customers, including depositors of UWB, will be able to operate their accounts as customers of IDBI, which is making necessary arrangements to ensure smooth service.

The RBI release said that if any surplus remains after meeting all the liabilities out of the realization of assets of the UWB, the shareholders may receive pro-rata payment after the prescribed period.

Against an outgo of Rs. 150 crore, IDBI will have access to 230 branches and 75 ATMs of UWB, mainly located in Maharashtra, which is one of the richest loan markets.

IDBI plans to create a separate strategic business unit of UWB. It already has two specialized banking units (SBUs) - development banking and commercial banking. We will use the branches of UWB to meet our priority sector targets, since UWB has a good rural presence, said a senior bank official.

The acquisition will also enable IDBI, the recently converted financial institution into a bank, to raise resources at lower cost and expand its customer base.

The Board of UWB, which was placed under moratorium on September 2 following erosion of its net worth, had strongly objected to RBI's proposal to merge the bank with IDBI on the ground that it would lose its independent identity.

UWB had contended that Maharashtra government agency SICOM and HDFC were willing to bail out the bank without compromising its separate identity.

The Sicom-HDFC-Maharashtra government combine was willing to pump in Rs. 350 crore (Rs. 3.5 billion) to rejuvenate the bank.

This would have valued each share of the bank at Rs. 32.40 against IDBI's offer price of Rs. 28 a share, the bank's board contended.

However, UWB officers had pleaded to the bank's Board of Directors (BoD) to cooperate with the Reserve Bank's plan.

The United Western Bank Ltd Officers Organization (UWBLOO) has asked its BoD to agree to the Reserve Bank of India's draft scheme, which envisages amalgamation of UWB with IDBI.

The UWBLOO has also appealed to the RBI to withdraw the restrictions imposed on UWB as a result of the moratorium on the bank in effect from September 2, as it was causing great inconvenience to around 20 lakh customers, depositors and employees of the bank, particularly during the ongoing festival season.

Particularly affected, according to UWBLOO were the smaller depositors and other customers including employees who have not been able to avail of the bank's services, the organization said in a memorandum submitted to the BoD.

As many as 17 banks and entities had shown interest to takeover UWB, which has over 230 branches across Maharashtra, Goa and Karnataka, Rs. 6,400 crore deposit base and 3,000 employees.