CHENNAI: The board of Indian Overseas Bank (IOB) on Tuesday approved a proposal to buy out other promoter-banks in Bharat Overseas Bank (BhOB) at Rs. 155 per share.

The Chairman and Managing Director of IOB, T. S. Narayanasami, told The Hindu that all the six co-promoter-banks in BhOB had agreed to sell their holdings.

IOB holds 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. The buy-out is expected to cost IOB Rs. 170 crore.

IOB had informed the Bombay Stock Exchange (BSE) that it would move the appropriate authorities for approval for acquiring these shares.

BhoB has a network of 100 branches and is the lone Indian bank to have a branch in Thailand. It was started on the joint sector to comply with laws then in force in Thailand. With the RBI restricting a bank's holding in another bank, the IOB move is keenly watched by industry observers.

Under the existing provisions, mergers can happen only on two occasions - through moratorium or via a scheme of amalgamation approved by Parliament. Since BhOB is a financially sound bank, the moratorium option is ruled out.

The other route will take its own time. Consequently, the buy-out option appears to be the best for IOB.

It is also felt that BhoB case is a precursor to preparing the banking industry for the post-2009 scene when restrictions on FDI (foreign direct investment) in the banking industry are expected to substantially ease.

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