IOB takes BhOB reins

MUMBAI: The Chennai-based government bank, Indian Overseas Bank (IOB) has finally taken control of Bharat Overseas Bank (BhOB), an unlisted private bank. This is the first instance of a public sector bank taking over a strong private sector bank without resorting to the moratorium route. IOB has virtually bought out other BhOB shareholders who now have a token stake left in the bank.

BhOB was promoted by seven banks, with IOB being the largest shareholder with a 30% stake, while other shareholders were Bank of Rajasthan (16%), ING Vysya Bank (14.66%), Federal Bank (10.67%) Karur Vysya Bank (KVB) and South Indian Bank (10%) and Karnataka Bank (8.67%).

IOB on Saturday bought out these holdings at Rs 155 a share. All these banks, however, still hold a token of one share of BhOB. IOB has paid Rs 171 crore for the transaction. Till date, public sector banks have taken over only weak private banks like Oriental Bank of Commerce taking over Global Trust Bank or Punjab National Bank acquiring Nedungadi Bank. Here, the private banks were put under moratorium.

PT Kuppuswamy, chairman, Karur Vysya Bank, said the bank sold its stake in Bharat Overseas Bank to Indian Overseas Bank for Rs 155 a share last Saturday. The Karur-based private bank had 10% stake in the bank. KVB would continue to hold one share of BhOB for legal requirements — till the final merger takes place.

The IOB board had in February approved the takeover of BhOB. With the deal now going through, Bank of Rajasthan will receive Rs 39.06 crore, ING Vysya Rs 35.78 crore, Federal Bank Rs 26.04 crore, KVB and South Indian Bank Rs 24.41 crore and Karnataka Bank Rs 21.15 crore.

BhOB has a branch network of 102 branches while IOB has over 1,500 branches. Incidentally BhOB was established in 1973 to take over IOB’s Bangkok branch in Thailand. BhOB would remain a wholly-owned subsidiary of IOB until the central bank of Thailand clears Bangkok branch’s licence under the changed ownership.

Interestingly, both Federal Bank and Bank of Rajasthan have been looking at taking over BhOB for quite some time now. BhOB had applied to the RBI for an IPO, but this was not approved by the central bank. A major contention among the various shareholders was the IPO pricing. The bank was initially looking at a price less than that of the book value. The book value of BhOB as on March 31, ’06 was Rs 130.