UWB NPAs may hit IDBI: S&P

NEW DELHI: Global rating agency Standard & Poor’s said United Western Bank’s huge bad loans may affect IDBI’s financial profile negatively. However, it said there is no immediate impact on IDBI ratings after the Reserve Bank cleared a merger proposal between UWB and IDBI.

S&P has a ‘BB+/Positive’ rating on IDBI. RBI announced a moratorium on UWB on September 2 and suspended its operations. The merger proposal of RBI requires IDBI to pay Rs 28 for each UWB share, amounting to a total of Rs 150 crore, and to assume the assets and liabilities of UWB according to the conditions in the proposal. This is the first instance in India where an acquirer bank is made to compensate the shareholders of a bank under moratorium.

The Rs 150 crore purchase consideration will have a negligible impact on IDB’s reported shareholders’ funds of Rs 6,659 crore as at March 31, ’06, S&P said. S&P, however, expects UWB’s weaker asset quality to impact IDBI’s financial profile negatively. UWB’s loan quality and recovery from its Rs 4,000 crore loan portfolio is a concern, given its regulatory net NPA ratio of 5.66% as at March 31, ’06.