IDBI Bank, United Bank deny merger rumours

Government-owned IDBI Bank on Monday ruled out any plans to merge with Kolkata-based United Bank of India and said it has not received any communications from the government with respect to the merger with United Bank.

“Nothing to my knowledge (on communication from government for the merger between IDBI and United bank),” said R K Bansal, executive director at the bank told FirstBiz. On 26 July, The Times of India reported the government has asked both banks to prepare a plan for the merger.

In a communication to the BSE, United Bank too denied the rumors. “No negotiations are taking place for the merger of the bank with any other bank,” United Bank said.

In a separate notification, IDBI Bank too denied the rumours on the exchanges. “We confirm that so far no proposal for merger of United Bank of India with IDBI Bank has been discussed at IDBI Bank’s Board Meeting and also no communication from Govt. of India in respect of the above has been received by the Bank,” IDBI Bank said.

An executive at United Bank of India, however, said there have been informal suggestions from the government to look at the possibility of a merger either with IDBI Bank or Union Bank. “That has been there for quite some time and is not a new one,” the official said on condition of anonymity.

In the past too, the government has explored possibilities of merger of weak state-run banks with stronger ones, but the efforts haven’t materialised. The last time a merger between two nationalised banks happened in early 90s, when Punjab National Bank acquired New Bank of India.

Rumors of merger pushed up the share price of United Bank. In the intra-day trade, the share price rose 10.2% to Rs 54. At 1.20 pm, the shares were trading up 5%, while benchmark index, Sensex was down 0.68% at 25950.29 points.

United Bank faced a crisis early this year after its bad loans skyrocketed. Gross non-performing assets (NPA) of the bank rose to about 11% in the December quarter, while its capital adequacy ratio, a key measure of the capital position of a bank, is at the bare minimum level of 9%.

In the March quarter, the bank managed some improvement in the bad loan situation. In the March quarter, gross NPAs of the bank were reduced to 10.47% on 31 March, down from 10.82% three months earlier. The lender attributed the issue to a deficient software used for identifying bad loans.

Following the nationalization of 14 banks in 1969 and six in 1980, RBI has so far given licences to only 12 banks in two phases. This included the conversion of a co-operative bank into a commercial bank.