The Telegraph
Since 1st March, 1999
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Scrum over United Western Bank

Mumbai, Aug. 23: Trouble is brewing at United Western Bank (UWB) following infighting between the bank’s principal shareholders and the management.

The bank, which has a sizeable presence in western India, was profitable till 1999-2000, but turned into a loss-making enterprise as the management of the bank set itself on a collision course with its principal shareholders. In 2000-01, the bank for the first time recorded a loss of Rs 15.68 crore against the previous year’s net profit of Rs 55.70 crore.

The management, believed to be supported by a political party, is pitted against Ashish Makharia, a shareholder with a 17 per cent stake and Sicom, a state-level financial institution with around 10 per cent stake.

The Investors’ Grievance Forum (IGF) headed by Kirit Somaiya, a BJP MP, has criticised the Makharia group for being a wilful defaulter. Makharia however rebuts the charge and says that a loan could not be returned within four days of it being granted. The turn of events according to him happened when Sicom sought a seat on the board. Within four days the management sought that the funds lent to the Makharias be returned, as they believed Sicom and the Makharias were working in tandem and had plans to control the management of the bank.

Makharia also denied allegations by IGF that he had violated the takeover code. “All the shares were acquired by us when the takeover code was not in existence,” he said.

Circles tracking the bank even allege that the profits of the bank were overstated by Rs 21 crore due to non-provision of certain expenses. It all happened when the directors on the board was alleged to have decided to proceed with a rights issue to acquire substantial voting rights after Sicom, along with other shareholders, demanded that the management should be broadbased. Sicom, one of the major shareholders in the bank, along with some other shareholders, proposed the induction of well-experienced and well-known personalities from industry, finance and administration on the bank’s board.

Incidentally, the management has very little stake in the bank.

Confronted with this, the directors of the bank drew up an Esop scheme for employees. The bank claims it received a “no objection” from the Reserve Bank of India, which stipulated that the scheme should be implemented with a fresh issue of shares.

In its hurry to acquire a sizeable stake and thus control, the bank management approached RBI for permission to acquire in excess of 5 per cent from the stock market and to ratify its decision to grant an interest free advance of Rs 26 crore to UWB Employees Equity Trust. In its desperation, the bank without waiting for the apex bank’s response, proceeded with the interest-free loans in excess of the permission obtained from RBI in 1998.

The bank management set up an employees’ equity trust which acquired the bank’s shares from the secondary market.

Banking circles say the acquisition was in violation of the Reserve Bank’s directives which resulted in the Trust acquiring about 25.32 lakh shares of the bank, representing about 8.41 per cent of the paid-up equity capital of the bank. The entire 25.32 lakh shares of the bank were acquired by the Trust in a matter of three weeks resulting in massive manipulation and rigging of share prices.

It is alleged that many persons associated with the deal benefited from the artificially inflated price. Meanwhile, the RBI asked for a recall of the entire loan granted to the Trust by selling the shares.

The management in its bid to retain control over 25.32 lakh shares is alleged to transferred these shares to the Employees and Officers Union.

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