Union agriculture minister Sharad Pawar may play a spoilsport in the Canara Bank-Dena Bank merger. Sources feel that Mr Pawar may want to protect the regional identity of the Mumbai-based Dena Bank and may thus oppose it. This raises concerns on the much-cheered deal, which could be easier said than done.
“It will be not be very easy to circumvent political interests. It is understood that agriculture minister Sharad Pawar has some reservations against such a merger,” a source in the government said. Similar concerns were raised when IDBI Bank took over United Western Bank.
Sources cited instances in the past when a proposed merger between Bank of India and Union Bank fell through because of the Left’s pressure. Then, the Left had opposed the deal on fears of possible job loss. Besides Mr Pawar’s opposition, Canara-Dena deal could also face integration issues, sources said.
The government holds 73% in Canara Bank and 52% in Dena Bank, the 51% statutory floor on government holding, therefore restricts Dena Bank from raising capital. The chairmen of both the banks have already met representatives from the finance ministry. The bank has appointed Ernst&Young to advise on this proposal.
E&Y had brokered the insurance joint venture deal of Canara Bank several months ago. “Dena bank is a nationalised bank with a pan-Indian presence, unlike the United Western Bank. It fits into the overall strategy of Canara Bank. While there could be political pressures, we do not foresee major opposition,” a source at Canara Bank said.
Dena bank is an attractive takeover target, because of its strong presence in Maharashtra. It could yield business from cotton and sugarcane growers in the state. The bank has strong western region coverage with 70% of the 1,143 offices in western India.
With major concentration of branches of the industrialised regions of Gujarat and Maharashtra, the bank has its business operations in these regions. The acquisition will help Dena bank to augment its capital base to meet future capital adequacy requirements. On a low capital base it will not be able to sustain growth of its business.
Canara bank is already the second largest state-owned bank in terms of assets. Canara Bank, has a network of 2,542 branches. It overtook Punjab National Bank in 2005-06 to become the country’s second-largest public sector bank in terms of advances and deposits.
Recently, Canara Bank, HSBC Insurance (Asia-Pacific) Holdings and Oriental Bank of Commerce (OBC) signed a non-binding deal to jointly establish a life insurance company.
“It will be not be very easy to circumvent political interests. It is understood that agriculture minister Sharad Pawar has some reservations against such a merger,” a source in the government said. Similar concerns were raised when IDBI Bank took over United Western Bank.
Sources cited instances in the past when a proposed merger between Bank of India and Union Bank fell through because of the Left’s pressure. Then, the Left had opposed the deal on fears of possible job loss. Besides Mr Pawar’s opposition, Canara-Dena deal could also face integration issues, sources said.
The government holds 73% in Canara Bank and 52% in Dena Bank, the 51% statutory floor on government holding, therefore restricts Dena Bank from raising capital. The chairmen of both the banks have already met representatives from the finance ministry. The bank has appointed Ernst&Young to advise on this proposal.
E&Y had brokered the insurance joint venture deal of Canara Bank several months ago. “Dena bank is a nationalised bank with a pan-Indian presence, unlike the United Western Bank. It fits into the overall strategy of Canara Bank. While there could be political pressures, we do not foresee major opposition,” a source at Canara Bank said.
Dena bank is an attractive takeover target, because of its strong presence in Maharashtra. It could yield business from cotton and sugarcane growers in the state. The bank has strong western region coverage with 70% of the 1,143 offices in western India.
With major concentration of branches of the industrialised regions of Gujarat and Maharashtra, the bank has its business operations in these regions. The acquisition will help Dena bank to augment its capital base to meet future capital adequacy requirements. On a low capital base it will not be able to sustain growth of its business.
Canara bank is already the second largest state-owned bank in terms of assets. Canara Bank, has a network of 2,542 branches. It overtook Punjab National Bank in 2005-06 to become the country’s second-largest public sector bank in terms of advances and deposits.
Recently, Canara Bank, HSBC Insurance (Asia-Pacific) Holdings and Oriental Bank of Commerce (OBC) signed a non-binding deal to jointly establish a life insurance company.