M&A stares banking sector

United Western Bank, Bank of Rajasthan, Dhanalakshmi Bank and Tamilnad Mercantile Bank are among the banks seen as next in line for being gobbled up by their bigger private sector counterparts.

According to RBI guidelines, banks should have minimum net worth of Rs 300 crore. With smaller private banks finding it difficult to meet it, merger with bigger banks is likely to hasten.

A classic example is Development Credit Bank, where the RBI has directed the Aga Khan Foundation for Economic Development (AKFED) to cut its stake to 10 per cent or below within one year of listing or by March 31, 2007, from the current over 50 per cent.

A string of deals for acquiring India's smaller private sector banks, banking analysts say, would happen sooner than expected.

Most of these smaller private banks would get gobbled up much before the banking sector is opened up for foreign banks in 2009, as suggested in the roadmap for foreign banks' presence in India.

Giving a push to smaller banks' need to merge is driving larger private sector banks to gain bigger size through acquisitions.

Centurion Bank of Punjab (CBoP), which is in the process of swallowing Lord Krishna Bank, still continues to be on the prowl. Inorganic expansion is a key element in CBoP spreading its tentacles wide and across the country, a senior official of the bank said.

United Western Bank is struggling to push through its rights issue, which is hanging fire for almost a year now. Ganesh Bank of Kurundwad failed to improve its financials, which compelled the RBI to impose a moratorium on the bank and merge it with Federal Bank.