IDBI likely to benefit from UWB buy, no impact on Ratings: Fitch

Mumbai, Sept 15 (UNI) Fitch Rating agency today said that the Industrial Development Bank of India's (''IDBI'') proposed acquisition of the troubled United Western Bank (''UWB'') is unlikely to adversely affect its credit profile, given UWB's small size (total assets of Rs 7000 crore) compared to IDBI's asset base of Rs 88,000 crore.

On the contrary, a Fitch release pointed out that the addition of UWB's 230 branches would double IDBI's distribution capability (currently 193 branches) and add small and medium enterprises (''SMEs'') and agricultural lending to its product portfolio.

However, the rating agency notes that a number of UWB's branches are in rural and semi-urban locations in Maharashtra, which could limit their business potential (including the mobilisation of retail deposits) unless some are relocated.

IDBI's ratings are affirmed at Issuer Default 'BB+', Short-term 'B', Individual 'D/E', Support '3', National Long-term 'AA+(ind)', National Short-term 'F1+(ind)', and National term deposit 'tAA+(ind)'. The rating Outlook is Stable.

The initial offer price of Rs 28 per share of UWB would result in a cash consideration of Rs 150 crore and the impact on IDBI's equity would depend on the final consideration paid and the resultant goodwill, which is likely to crystallise over the next few months.

Nonetheless, adjusting IDBI's equity by the indicated purchase price and adding UWB's assets to IDBI's balance sheet would reduce IDBI's equity-to-assets ratio in FY06 by about 70 basis points to an adequate 6.5 per cent. Even assuming that more problem loans may need to be provided for, IDBI's equity-to-assets ratio is likely to remain better than the system median of 5.8 per cent.

The addition of UWB's Rs 230 crore reported net non-performing loans (NPLs) would increase IDBI's reported net NPL ratio (One per cent at FY06) by about 0.5 per cent and is therefore unlikely to have a significantly negative impact on its asset quality.

IDBI's financials have been improving over the past two years, and if the trend is maintained, may result in an upgrade of its Individual rating.

UNI SN ADG AG2006