Bombay HC to hear UWB petition tomorrow

The board of United Western Bank (UWB) has strongly objected to the Reserve Bank of India's (RBI) proposal of handing over the troubled private sector bank to Industrial Development Bank of India (IDBI).

According to the bank's board, the SICOM-HDFC-Maharashtra government combine was willing to pump in Rs 350 crore to rejuvenate the bank. This would have valued each share of the bank at Rs 32.40, claimed the bank, against the IDBI offer price of Rs 28 per share.

In a related development, the Bombay High Court will hear the petition
challenging the moratorium tomorrow. The petition was filed by three
depositors of the bank last week.

The United Western board, which met on September 26 to firm up suggestions and objections to scheme, claimed that RBI's move to place the bank under moratorium was "untimely and uncalled for and unjustified" as depositors have reposed strong confidence in the bank. This is evident from low amount of withdrawals (Rs 124 crore) between September 2 and 20.'

The bank has a deposit base of over Rs 5,600 crore. RBI had placed the bank under moratorium on September 2 citing reasons of deteriorating financial health.

"RBI has not made known reasons for not accepting the scheme for
reconstruction proposed by SICOM, investment banking entity of state
government with over 10 per cent in the bank," the UWB board note said.
The bank board did not have information including price quoted by various financial sector players including ICICI Bank and Canara Bank for
amalgamation. "Hence it is not possible to state that the option (merger) is
the best for all stakeholders," it said.

It pointed out that the offer price (Rs 32.40) in the reconstruction scheme
was based on Securities and Exchange Board of India formula and without considering the valuation of the off-balance sheet items. "In view of this,
a price lower than the price mentioned in our proposal is not acceptable.",
the board said.

According to the board, the merger of UWB with IDBI is not a scheme of amalgamation but purchase transaction since nether as shares of IDBI are not offered for shares of UWB. It also alleged that the relevant provision of Banking Regulations act (Section 45, subsection 5-H ) was not followed as there would not be any exchange of shares under the draft amalgamation scheme.

"The shareholders may lose the income tax benefits on account of capital
gains, as the transaction will not be on the floor of the stock exchanges.
RBI should take up this taxation issue with the government," the board said.