IDBI Bank and United Bank of India rose by 0.83% to 5.20% at 13:19 IST on BSE on reports the government has asked United Bank of India and IDBI Bank to prepare a merger plan.
United Bank of India (UBI) (up 5.20%) and IDBI Bank (up 0.83%), edged higher.
The S&P BSE Sensex was down down 199.26 points, or 0.76% at 25,927.49.
Shares of UBI had outperformed the market over the past one month till 25 July 2014, rising 11.49% compared with 3.21% rise in the Sensex. The scrip had also outperformed the market in past one quarter, rising 57.30% as against Sensex's 15.16% rise.
Shares of IDBI Bank had underperformed the market over the past one month till 25 July 2014, falling 16.05% compared with 3.21% rise in the Sensex. The scrip had, however, outperformed the market in past one quarter, rising 33.53% as against Sensex's 15.16% rise.
According to reports, United Bank of India's merger with IDBI Bank made perfect sense. IDBI has a weak presence in the eastern part of the country where UBI has a strong branch network. Besides, IDBI Bank is seen to have a weak retail network, which can be strengthened by the Kolkata-headquartered UBI. In addition, both the banks use common software, Infosys' Finacle, which will make the merger easier, reports said.
UBI has been struggling with high bad debt, which has eaten into its capital base. Its ratio of gross non-performing assets (NPAs) to gross advances stood at 10.47% as on 31 March 2014 as against 10.82% as on 31 December 2013 and 4.25% as on 31 March 2013. The ratio of net NPAs to net advances stood at 7.18% as on 31 March 2014 as against 7.44% as on 31 December 2013 and 2.87% as on 31 March 2013. UBI's Capital Adequacy Ratio (CAR) as per Basel III norms stood at 9.81% as on 31 March 2014 as against 9.01% as on 31 December 2013.
If UBI merges with IDBI Bank, then it will help UBI get a capital boost, reports suggested.
The Government of India (GoI) holds 76.50% stake in IDBI Bank (as per the shareholding pattern as on 30 June 2014).
The Government of India (GoI) holds 89.47% stake in United Bank of India (as per the shareholding pattern as on 30 June 2014).
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