Sucheta Dalal :Reversal times (9 Nov 2003)
Sucheta Dalal

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Reversal times (9 Nov 2003)  

That Industrial Development Bank of India’s (IDBI) revival plan includes a possible reverse merger with IDBI Bank is old news. But IDBI under M. Damodaran’s leadership has planned a far more ambitious future for itself and has even finalised its revival strategy. It aims to become one of the three biggest banks in the country, along with State Bank of India and ICICI Bank, by amalgamating with a large nationalised bank. The merged entity would probably include IDBI Bank. Clearly, its alliance plans have progressed well beyond the hunt for a suitable partner. Top-level sources say that the move is in line with the Narasimham Committee recommendation that the Indian banking system should have at least three large banks around the same size as SBI. It is expected that the core IDBI will be the new bank’s headquarters and will handle its long term funding, while the public sector bank will provide the retail network. Of course, none of this will happen without strong support from the Finance Ministry and the Reserve Bank of India and a large bailout by the exchequer. That’s because IDBI after its merger will face the same problems as ICICI in converting itself into a bank—that of meeting the Statutory Liquidity Ratio requirement. IDBI’s merger with a large nationalised bank was speculated about two years ago, and an internal shortlist reportedly included Union Bank of India, Punjab National Bank, Canara Bank and Syndicate Bank. One of these still remains the likely partner for IDBI Bank.

Game plan next

While IDBI is headed for a major revival attempt, the future of the two Unit Trust of India (UTI) entities is less clear. Both are riding the bull market wave having registered a substantial increase in Net Asset Values. The unprecedented bull run has given the government a terrific opportunity to get a good price for a substantial stake in UTI-2. This could also allow the government to recover a chunk of the money that went into bailing out the mutual fund monolith. While the UTI top brass is keen on government getting out of the fund management business, the US investigations into mutual fund may put a damper on such a move. UTI-2, even at half the size of the original investment monolith that is was, remains India’s largest mutual fund and has no close competitor. This means that a strategic sale by the government would hand over India’s largest mutual fund to a foreign company, in all probability one of the big US Funds. That could agitate the Swadeshi lobby and the leftists, especially at a time when the American Mutual Funds business in mired in scandal.

Recovery strategies

ASSET Reconstruction Company of India Limited (Arcil), which is part owned by ICICI Bank, IDBI, SBI and HDFC now has some competition with the government clearing three new Asset Reconstruction Companies. The second, called ACE (Asset Care Enterprise) is led by IFCI, the third is to be floated by UTI and will be called ASREC for Asset Recovery Company and the fourth is a curious combination of former SBI Chairman M.S. Varma, former Mumbai police chief M.N. Singh and Arun Duggal of HCL Technologies. With four ARCs competing to reconstruct India’s humungous Non Performing Assets (NPAs), we have one of two possibilities. That NPAs will be substantially whittled down, or that we would have created another set of institutions spewing worthless paper into the system, which is subscribed to by the same banks and institutions that created the NPAs in the first place.

Speculative moves

ONCE the benchmark BSE Sensitive Index crossed the 5,000 mark, a set of scrips that seemed set to miss the massive bull run altogether made a desperate attempt to power upwards. These are scrips transferred to the Trade-for-Trade (T-to-T) segment at the end of September, based on evidence that a small group of investors was running up huge trading volumes, in what seemed a ramping operation. They included, Bellary Steels, HFCL, Lupin, Aftek, Global Trust Bank, GTL, Kopran, Pentamedia, Silverline and SSI. Last Wednesday, almost all these scrips hit the upper circuit filter with a rise of at least 20 per cent based on false rumours that they would shortly be moved out of T-to-T segment very shortly. Regulators deny that such a move is even contemplated. But the scrips have remained at a high even while the entire market experienced a correction. The much touted turnaround scrip, HFCL was near its all time low at Rs 12.75, but shot up to Rs 17 and has closed the week a shade lower. Day traders and punters are waiting to see of interested circles that tried to manipulate these scrips would be able to hold up prices if the market continues its correction.

-- Sucheta Dalal