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UCO Bank is open for merger with bank in south
27th October 2004: The Kolkata-based UCO Bank is looking at a merger with a strong bank, preferably in the south. VP Shetty, the chief managing director of UCO Bank said, the bank is in talks with a clutch of consultants and will engage one of them for merger and acquisition (M&A) advisory services. The consultant, A T Kearney is at present conducting strengths, weaknesses, opportunities, threats analysis of the bank and will submit a report soon. It is also in the race for the job with its M&A advisory services.

Shetty added, “Our bank’s network of 1,730 branches is strong in the north and east, and we are not weak in the west. A bank in the south would be ideal for us. The bank is slated for a giant leap, not just organic but also inorganic growth. In terms of locations, our branches are among the best after the State Bank of India.”

Government to make easy the progress of merger of banks
28th October 2004: The Finance Minister said the Government was planning to extend tax incentives in the next Budget to help consolidation in the Indian banking sector. After a meeting with the heads of public sector banks and financial institutions, the Finance Minister said the Reserve Bank of India’s (RBI) discussion paper suggesting the holiday pattern in banks was meant to encourage debate. A final decision on ownership pattern would be taken later.  

A large number of foreign banks, which were earlier planning to set up subsidiaries in India, have deferred a decision in the absence of clarity on lifting the 10% cap on voting rights. In addition, group and individual holdings in private banks were proposed was to be gradually reduced to 10%. The RFI had proposed to allow 5% holding by foreign banks in an Indian subsidiary. This was despite the Government’s decision to raise the foreign investment ceiling to 74%. The Finance Ministry also said he expected interest rates to remain stable in the medium terms. The Finance Ministry wants banks to reduce their investment in Government securities and instead offer new investment avenues to retail investors besides enhancing credit flow to agriculture and infrastructure projects.

The Finance Minister said the Government would stay away from arranging mergers and would instead let banks tapping the markets for raising funds. He, appeared satisfied with the performance of banks in ensuring higher credit flow to agriculture, infrastructure and education. Another review is proposed in January. On the issue of amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Finance Minister said the changes would be incorporated after more consultations on the matter.

M&A covers provide for fees of lawyers, accountants
2nd October 2004: India Inc now offers an insurance cover for failed takeovers. There are policies to cover aborted takeover bids, to ensure that the counter party in a friendly merger fulfils its promises and one against hostile takeovers. “This speciality of the cover is that it can be bought by either party. The seller can buy this cover to reassure the buyer or the buyer can purchase this cover for his own protection.” Purchasers to limit their liability to third parties while acquiring a business also use this cover. Howden India is an arm of UK-based Howden Insurance Brokers that please a large share of the global liability and financial services insurance.

The availability of these covers is expected to increase the comfort level of acquirers in launching takeover attempts. Takeover bids usually take months in preparations and involve huge costs in payments to investment bankers, attorneys, accountants, consultants and public relation firms. These expenses can be covered under an aborted bid insurance cover. The deal may have fallen through due to backing out by the counter party, due to regulatory intervention or through a counter bid by a third party. In all such cases the insurance policy will cover the incidental expenses.

There is also a cover for takeover targets in the form of a hostile takeover policy. “A hostile takeover, as the name suggests, involves a legal battle and huge costs. A company that feels threatened can get protection against defence costs and other related expenses in thwarting a takeover at tempt, ”said Mr. Vashsita. Transactional covers, besides providing protection to corporates, are also available to protect intermediaries against legal liabilities in specific transactions. For instance, an accountancy firm that advises in an M&A deal can take a tax liability insurance. The policy can be used to cover loss of anticipated tax benefits or against adverse tax consequences. There is a similar cover for specific legal opinions.

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