Bank of Punjab revokes its pref allotment order

Bank of Punjab has revoked its February order of alloting 18.78 per cent preferential shares to five investors "" Bank of Nova Scotia, Canada, ICB Financial Group Holdings, Switzerland and Bharati Enterprises. The announcement comes a day after the Bank of Punjab and Centurion Bank boards decided to merge the two banks.

The decision of the merger was triggered by the Reserve Bank of India (RBI) denying Bank of Punjab the approval for the preferential allotment, said a senior banking source. The bank is starved for capital, he added.

The boards of the two banks will meet on June 29 again to decide on the final terms of the merger. Ambit Corporate Finance has been appointed as the sole investment banker and KPMG and N M Raiji have been appointed as independent valuers to decide on the share swap ratio.

Bank of Punjab has net non-performing assets of around Rs 110.45 crore as on March 2004, which will be carried to Centurion Banks books after the merger.

"We have in the past proven our ability to clean the bank's balance sheet," said senior official in the bank. "With a strong management and adequate capital, the bank should be able to manage the NPAs," he added.

Both the brands are strong in their respective geographers and businesses hence the merged entity will have the elements of both, he added.

Centurion Bank has a presence in south and west and Bank of Punjab has a strong presence in the north. "The merger will give us scale, geographical reach and entry into new product segments" said the official.

Tax benefit will also be a major factor in determining which entity would give up its identity, said sources. Centurion Bank is likely to enjoy greater tax benefits as it will be acquiring a loss making bank, he said.

"There is a very little overlap in the businesses of these two banks," he added.

Bank of Punjab is strong in small and medium enterprises (ME) business in the north, with good retail assets and an agriculture portfolio as well as deposit franchisee.

Centurion Bank has the capital, ability to generate retail assets, risk management systems and good treasury division.

"Market players expect the swap ratio to be 2:1," said sources. For every two stocks of Centurion Bank, a shareholder will get one stock of Bank of Punjab. The merged entity will have a asset base of Rs 10,000 crore, said a senior bank official. The deposit base of the entity will be around Rs 7,165.67 crore and advances will be around Rs 3909.87 crore.