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Tuesday, January 12, 2010

IDBI in talks to buy private bank

IDBI Bank Chairman and Managing Director Yogesh Agarwal today said that the public sector player had completed due diligence on a private bank for possible acquisition.

"Talks are on. Due diligence has been done. I cannot commit on the time-frame," he said on the sidelines of Bancon 2009-10 here today.
The statement pushed up the public sector bank’s share price. At 12.45 PM, the stock was trading 2 per cent higher at Rs 136.85 against yesterday’s closing price of Rs 134.25 on the Bombay Stock Exchange. It had shot up to Rs 139.90 immediately after Agarwal’s statement.
In November, the bank had said that it had a potential merger target even as it had abandoned the plan to sell its home finance arm.

Since conversion into a bank in October 2004, IDBI merged IDBI Bank into itself in 2005. In 2006, it acquired United Western Bank. The erstwhile development financial institution is yet to sort out some of the human resource problems that came along with the two mergers such as a common pay scale.

The bank, which had estimated its total a capital requirement of Rs 15,000 crore over the next three years, expects to get Rs 7,500-8,000 crore from the government. The government has however, deferred plans to provide more capital to public sector banks until the next financial year. At the end of March 2009, IDBI Bank’s capital adequacy ratio was estimated at 11.57 per cent.

The government has said that it will provide capital to public sector banks to ensure that they have a capital adequacy ratio of 12 per cent though RBI has mandated a capital adequacy ratio of 9 per cent.

Agarwal’s statement came within minutes of Financial Services Secretary R Gopalan saying that the government will bless synergy-based consolidation in the public sector. Though IDBI Bank is not amongst the largest in the public sector space, it is unlikely to be a merger candidate as the government at the time of conversion of IDBI into a bank had assured Parliament that the new entity would not be merged with another bank.

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