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RBI awards United Western Bank to IDBI – Analysis

September 14, 2006

Of all the large PSU banks in India, IDBI is the laggard and has one of the highest NPAs with very non-friendly staff and non-consumer oriented banking products. In the 90s IDBI & ICICI were at par because both of them were industrial lending institutions. But in the late 90s, ICICI changed its policies and started writing off NPAs from cash profits every year and has attainted a healthy stature today. However, IDBI slacked and is still one of the worse banks in the country.

The RBI’s decision to handover United Western bank to another bank which is struggling to keep pace with is a bad move. However, IDBI is paying twice the book-value and 31% premium to the stock price of United Western Bank shares taking into consideration Sept-12th closing price of UWB.

IDBI issued its shares at Rs80 some 8 years ago and just on one or two ocassions the stock price has crossed oevr Rs80 when all the other investments have multiplied 8-10 times on Dalal Street. Considering this background and the huge NPAs and inability to perform, I recommend an exit for current stock holders of United Western Bank and maintain a SELL and underperforming rating on the stock.

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