Troubled times

New Delhi, Sept. 14: The bailout of beleaguered United Western Bank (UWB) has turned controversial with the Left sniffing a scam and asking finance minister P. Chidambaram to explain why IDBI has been asked to buy out the failed Satara-based bank.

UWB has a negative net worth, a capital adequacy of less than one against a norm of 12 and is laden with non-performing assets of over Rs 500 crore.

Yet, the Reserve Bank of India has directed IDBI to fork out Rs 28 a share to buy out the stake held by UWB’s shareholders.

The central bank had slapped a three-month moratorium on UWB on September 2 and immediately faced a deluge of offers to take over the ailing bank. IDBI was picked from a bunch of 17 suitors.

The Left alleges that the stock purchase price of Rs 28 per share works out to a premium of 31 per cent on UWB’s closing price on September 12, a day when the bank's share price rose on speculation that it would be taken over. The stock had fallen to a low of Rs 10 on September 4.

In a tersely worded letter to the finance minister, CPI deputy leader in the Lok Sabha, Gurudas Dasgupta, has pointed out that “recently, Global Trust Bank and Nedungadi Bank were put under moratorium and were merged with Oriental Bank and Punjab National Bank, respectively, but shareholders of these banks were not offered any compensation at all.” They were told that compensation, if any, would be given after 12 years.

“Why are UWB bank shareholders being favoured so shamelessly,” the letter asks. The Left leader told The Telegraph that the hugely favourable deal, which forces state-run IDBI to fork out Rs 150.55 crore to shareholders of a failed bank, has been worked out to help “a Maharashtra-based minister in the present Union cabinet.”

Dasgupta's letter said, “The most surprising part of the UWB affair is that after the declaration of moratorium by RBI on September 2, the shares first went into a free fall mode to below Rs 10 ... then rose to Rs 21.45 on September 12 due to market manipulation and many banks showing interest in taking it over.”

On an average, nearly 49 lakh shares of UWB changed hands on BSE after the moratorium. Prior to the moratorium, the two-week average of the counter was less than 16,000 shares.

“In short, it is a scam …in the way UWB shares were manipulated and it (the bank) was foisted on IDBI,” Dasgupta said. “It is a bank that has run into the red due to malpractices of its management and this is the final malpractice.”

Draft scheme

UWB has decided to seek clarification from RBI on the draft scheme of amalgamation. The bank has also constituted a four-man committee to study the scheme and receive clarifications from RBI.