IOB to buy BhOB for Rs 170 cr

Board approves proposal to buy Bharat Overseas shares at Rs 155 per share.

Public sector Indian Overseas Bank (IOB) today announced it would acquire 70 per cent stake in Bharat Overseas Bank (BhOB) for about Rs 170 crore. IOB already owns 30 per cent of BhOB.

The board of directors of IOB approved the proposal of buying BhOB shares held by other six banks at Rs 155 per share, subject to approvals. The book value of BhOB is Rs 125 per share.

IOB Executive Director A R Nagappan said the board has only approved the acquisition price and whether the other BhOB shareholders would be paid in cash or in IOB shares would be decided later depending on the approvals from the regulatory authorities.

The acquisition of BhOB by IOB will be the first instance of a government-owned bank acquiring a private sector bank. The earlier cases involved merging of private sector banks put under moratorium by the RBI with public sector banks.

IOB is governed by the Banking Companies (Acquisition) Act, while BhOB is a bank formed under the Companies Act.

"Both IOB and BhOB have sought legal opinion on the procedures to be followed. It needs to be decided whether the procedures laid down in the Companies Act or the Banking Companies (Acquisition) Act will have to be followed, or both the acts will have to be adhered to," banking sources said.

Nagappan said the issue of integration of BhOB with IOB has not been considered now. "In the first stage the board had approved acquisition of stakes of other banks in BhOB. How to integrate IOB and BhOB will be taken up after all the regulatory clearances are received," he added.

IOB will be acquiring the stake of Bank of Rajasthan (16 per cent), The 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).

BhOB 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.