No immediate rating impact on IDBI from UWB merger

SINGAPORE, Sept. 14, 2006 "" Standard & Poor's Ratings Services said today its ratings and outlook on Industrial Development Bank of India Ltd. (IDBI, BB+/Positive/B), a public sector bank, are not affected by the Indian central bank, Reserve Bank of India (RBI), clearing a merger proposal between United Western Bank Ltd. (UWB) and IDBI. RBI announced a moratorium on UWB on Sept. 2, 2006, and suspended its operations.

The merger proposal requires IDBI to pay Indian rupee (Re) 28 (US$0.61) for each UWB share, amounting to a total of Re1.50 billion, and to assume the assets and liabilities of UWB according to the conditions in the proposal. This is the first instance in India where an acquirer bank, IDBI, is required to compensate the shareholders of a bank under moratorium.

UWB's branch network in the affluent western Maharashtra region in India and its wide depositor base is expected to boost IDBI's distribution network and grow its retail portfolio. The Re1.50 billion purchase consideration will have a negligible impact on IDBI's reported shareholders' funds of Re66.59 billion as at March 31, 2006. Standard & Poor's, however, expects UWB's weaker asset quality to impact IDBI's financial profile negatively.

UWB's loan quality and recovery from its Re40 billion loan portfolio is a concern, given its regulatory net NPL ratio of 5.66% as at March 31, 2006, is significantly above the peer group average of about 2%. Standard & Poor's will continue to monitor the impact on IDBI's financial profile.

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