Merger May Put Pressure On Centurion Public Issue

The likely merger of 20th Century Finance with Centurion Bank will have an impact on the bank's forthcoming public issue.

20th Century Finance had total assets of Rs 900.05 crore as on December 31, 1997, up from the previous year's Rs 840.05 crore. Investments accounted for 15. 6 per cent of the total assets under management.

While the leased assets accounted for 15 per cent of total assets, while they accounted for 83 per cent of gross fixed assets. This can affect the balance sheet of Centurion Bank as the chances of increasing defaults from these leased assets are high.

This can be seen from the spurt in the provisions for NPAs which jumped 206 per cent to Rs 8.09 crore.

This increased provisions will further add to the NPAs of Centurion which stands at Rs 0.34 crore. Of the total investments of Rs 140.8 crore nearly 18.8 per cent in unquoted subsidiaries. Of these nearly Rs 86.15 crore is in the form of quoted investments.

This will boost the investments of the Centurion to that extent in the equity markets. According to the RBI stipulations banks can invest up to 5 per cent of their incremental deposits in the equity markets. Centurion Bank Rs 124-crore of deposits and assuming all the deposits with 20th Century Finance are transferred to the bank.

The bank will face problems with meeting that target. It has to sell of these investments which will further bring down asset quality of the bank as they might have to writ off some of the investments.

This will also have an impact on the pricing of the bank for its public issue. The pricing will also be affected due to the asset quality which will deteriorate. Another issue which has to be addressed is the compensation for the 20th Century shareholders, whether it will be in the form of shares in the bank or whether the share holders will be paid cash.