The Hindu : Business : IOB offers to buy out stakes of other banks in Bharat Overseas

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Tuesday, Jan 03, 2006

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IOB offers to buy out stakes of other banks in Bharat Overseas

K. T. Jagannathan

The buy-out plan is seen as a shareholding consolidation exercise

CHENNAI: Indian Overseas Bank (IOB) has made a proposal to buy out the holdings of other banks in Bharat Overseas Bank (BhOB).

The proposal was communicated to the heads of the shareholding-banks in BhOB at a meeting convened here on Monday by IOB.

Chairmen of IOB, Federal Bank, Karur Vysya Bank, Karnataka Bank and South Indian Bank attended the meeting.

Its Deputy Managing Director represented bank of Rajasthan. None came from ING Vysya Bank, however. Since it was a meeting of the owners of BhOB, its chairman was not present at the IOB-convened gathering.

It is gleaned from authoritative sources that the co-shareholding banks were merely informed about the buy-out proposal by IOB. No discussion took place on the modalities of the buy-out, these sources added. These sources hastened to add that Monday's meeting was an informal one.

Sources further said that the board of BhOB would now have to convene a meeting of the shareholders to get nod for the IOB proposal. The valuation would be done only after these formalities were completed, they pointed out. These sources were unwilling to hazard any guess at this point in time on the mode of buy-out by IOB — cash or a swap deal.

It may be recalled that earlier Federal Bank and Bank of Rajasthan had shown interest in buying out other shareholding-banks in BhOB. It did not, however, elicit a positive response from other banks. The IOB proposal this time around, banking sources felt, would go through since it had reportedly the blessings of the both the Ministry of Finance and the RBI.

The IOB buy-out proposal is seen as a shareholding consolidation exercise. Observers feel that it could be a prelude to eventual merger of BhOB with IOB. They cite the Reserve Bank of India guidelines to buttress their argument. Some observers were of the view that the BhOB case could be "a test case for things to come in the in the days to follow."

The thinking within the government was that consolidation would have to happen, as small banks could not survive in the emerging competition, these sources pointed out.

The apex bank's guidelines bar any single bank from holding more than five per cent stake in another bank. IOB has around 30 per cent stake in BhOB, Bank of Rajasthan 16 per cent, ING Vysya 14.66 per cent, Federal Bank 10.67 per cent, Karur Vysya Bank 10 per cent, South Indian Bank 10 per cent and Karnataka Bank 8.67 per cent.

Interestingly, the IOB proposal comes much after BhOB had made an application with the apex bank in the middle of 2005 to float an IPO (initial public offer) to facilitate dilution of holdings by owner banks. Things had changed since then culminating in the latest buy-out proposal from IOB. Bharat Overseas Bank has 102 branches.

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