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    The Fall of United Western Bank: Case Summary

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    Prabhu Srijan Budhwar
    United Western Bank Limited (UWBL), an Indian commercial bank, collapsed in the late 1990s due to asset-liability mismanagement, inefficient management, irregular transactions with shareholders like the Makharia Group, and conflicts between shareholders. To protect creditors, the Government of India merged UWBL with IDBI Bank in 2006. IDBI announced it would combine UWBL's financial performance with its own starting in the third quarter of 2006-07. Analysts felt this merger would help IDBI expand its branch network and customer base throughout Maharashtra.

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    The Fall of United Western Bank: Case Summary

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    Prabhu Srijan Budhwar
    48 views2 pages
    United Western Bank Limited (UWBL), an Indian commercial bank, collapsed in the late 1990s due to asset-liability mismanagement, inefficient management, irregular transactions with shareholders like the Makharia Group, and conflicts between shareholders. To protect creditors, the Government of India merged UWBL with IDBI Bank in 2006. IDBI announced it would combine UWBL's financial performance with its own starting in the third quarter of 2006-07. Analysts felt this merger would help IDBI expand its branch network and customer base throughout Maharashtra.

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    LEB_F2_PartC1-United Western Bank

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    United Western Bank Limited (UWBL), an Indian commercial bank, collapsed in the late 1990s due to asset-liability mismanagement, inefficient management, irregular transactions with shareholders like the Makharia Group, and conflicts between shareholders. To protect creditors, the Government of India merged UWBL with IDBI Bank in 2006. IDBI announced it would combine UWBL's financial performance with its own starting in the third quarter of 2006-07. Analysts felt this merger would help IDBI expand its branch network and customer base throughout Maharashtra.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    48 views2 pages

    The Fall of United Western Bank: Case Summary

    Uploaded by

    Prabhu Srijan Budhwar
    United Western Bank Limited (UWBL), an Indian commercial bank, collapsed in the late 1990s due to asset-liability mismanagement, inefficient management, irregular transactions with shareholders like the Makharia Group, and conflicts between shareholders. To protect creditors, the Government of India merged UWBL with IDBI Bank in 2006. IDBI announced it would combine UWBL's financial performance with its own starting in the third quarter of 2006-07. Analysts felt this merger would help IDBI expand its branch network and customer base throughout Maharashtra.

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    of 2

    Page 1 of 2

    The Fall of United Western Bank


    Case Summary
    The case describes the growth and collapse of United Western Bank Limited (UWBL), a private
    sector commercial bank in India. Since the late 1990s, UWBL was facing several problems including
    asset-liability mismanagement, inefficient management of bank's assets, irregular transactions with
    some of its major shareholders like Makharia Group, conflicts between the bank's major
    shareholders regarding the ownership of the bank and poor governance. These problems
    collectively resulted in the collapse of UWBL. In order to protect the interests of the creditors of
    UWBL, the Government of India announced the merger of the bank with IDBI Bank.

    Background Note
    UWBL was founded by Waman Ganesh Chirmule in 1936. It started its operations on March 08,
    1937. In the year 1951, UWBL was declared as a Scheduled Bank, under 'Other Indian Scheduled
    Commercial Banks (in the private sector)' group.
    In 1956, the Union Bank of Kolhapur, was merged with UWBL followed by the merger of Satara
    Swadeshi Commercial Bank Limited too in 1961. In 1969, UWBL obtained the status of a 'B' class
    bank and was upgraded to 'A' class in 1974. Over the decades, UWBL became one of the most
    preferred private sector commercial banks in western India. It had a vision of being 'A technology
    savvy, customer centric progressive bank with a national presence, driven by the highest standards
    of corporate governance and guided by sound ethical values. UWBL offered diversified products like
    automobile finance, housing finance, corporate finance, export finance, finance for education,
    finance to SMEs, etc...

    The Problems
    There were several problem, which led to the fall of UWBL, that once had reached the 'A' class bank
    category. Irregular transactions with some of its major shareholders, conflicts between its major
    shareholders regarding the ownership of the bank, poor governance and inefficient management
    of capital were the main reasons for its collapse.

    On May 30, 1998, UWBL was penalized for Rs. 1 million by the RBI for irregular transactions with
    the Makharia Group of companies (MGC). The Makharia family was given loans for purchasing
    UWBL's shares (in its 1995 rights issue) through its flagship company - Emtex Industries (India)
    Limited (Emtex). UWBL provided an overdraft facility of Rs 68.8 million to Emtex. Also, a letter of
    credit (LC) was sanctioned to MGC. According to RBI, the credit facility was granted to Emtex "for
    the sole purpose of enabling the Makharia group of companies to subscribe to the rights issue of
    the bank." Besides this, RBI felt that the LC facility was provided with the intention of preventing
    MGC's loan account with UWBL from becoming non-performing assets (NPAs). UWBL paid the
    penalty on June 16, 1998

    The Fall
    Industry experts felt that a long battle over the ownership of the bank had led to poor governance
    and control systems at UWBL. The exact shareholding of Makharias in the bank was not clear.
    According to the Mumbai Stock Exchange (MSE) records, the Makharias owned around 3% of the
    shares whereas the actual figure was much higher.
    Page 2 of 2

    The Steps Taken


    About 17 commercial banks including ICICI Bank, Canara Bank, Federal Bank, Andhra Bank, Standard
    Chartered Bank, Allahabad Bank and others expressed their interest in acquiring UWBL. Finally, on
    September 13, 2006, RBI announced that UWBL would merge with IDBI and issued a statement that
    "the amalgamation will come into force on October 3, 2006. All the branches of the United Western
    Bank will function as branches of Industrial Development Bank of India Ltd with effect from this
    date".

    IDBI announced that the financial performance of UWBL would be merged with the financial
    performance of IDBI in the third quarter of the financial year 2006-07

    The Road Ahead


    Analysts felt that the amalgamation of UWBL with IDBI would support IDBI's growth. IDBI wanted
    to expand its branch network. By acquiring UWBL, IDBI got access to its 230 branches that covered
    all the commercially important places in Maharashtra. With the RBI having restricted branch
    licenses in over-banked urban centres, this access would help IDBI's expansion. Analysts opined that
    the merger would sustain the momentum of IDBI's growth in terms of deposits by widening its retail
    presence.

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