IOB set to take over Bharat Overseas Bank

India, Thailand agree on PSU bank's presence in Bangkok.

Bharat Overseas Bank is set to be merged with Indian Overseas Bank. According to sources close to the development, the finance ministry and the Reserve Bank of India are working on merger plans and a formal announcement is due in March.

Bharat Overseas Bank was originally designed to anchor Indian banks' overseas operations. The provocation was the Thai government asking Indian Overseas Bank to close its Bangkok branch in 1969 after its nationalisation.

The government withstood the Thai pressure for four years and in 1973, following an RBI initiative, six private banks teamed up with Indian Overseas Bank to form Bharat Overseas Bank.

"The Indian government has now reached an understanding with Thailand. The RBI has allowed Krung Thai Bank Public Co to set up shop in India and Thailand is ready to reciprocate the gesture. So, there will be no problem in Indian Overseas Bank taking over Bharat Overseas Bank," said a source familiar with the development. Bharat Overseas Bank's Bangkok branch accounts for a third of its assets and profits.

Indian Overseas Bank owns 30 per cent in Bharat Overseas Bank. The other stockholders are Bank of Rajasthan (16 per cent), Vysya Bank (14.66 per cent), Federal Bank (10.67 per cent), Karur Vysya Bank (10 per cent), South Indian Bank (10 per cent) and Karnataka Bank (8.67 per cent). In March 2005, Bharat Overseas Bank had an equity base of Rs 15.75 crore and a net worth of Rs 198 crore.

RBI norms require commercial banks to have an equity base of Rs 300 crore. Besides, they must have a diversified holding with no single entity owning more than a 5 per cent stake.

In March 2005, Indian Overseas Bank had an asset base of Rs 50,815 crore and capital of Rs 544.80 crore. Bharat Overseas Bank's asset base is Rs 3,214 crore on a capital base of Rs 15.75 crore. Its net worth is, however, Rs 198.39 crore against Indian Overseas Bank' Rs 2,575 crore.

Bharat Overseas Bank's plan to tap the capital market has not yet been cleared by the RBI.