BoB plans to acquire Malaysian bank

Written by Hemang Palan | Kumud Das | Mumbai | Updated: Aug 31 2009, 07:36am hrs
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Government-owned Bank of Baroda (BoB) plans to acquire a bank in Malaysia by the middle of next year. BoB is the third public sector bank, after State Bank of India and Punjab National Bank, to flesh out acquisition plans abroad.

A senior bank official, connected with the development, said an acquisition is necessary as the rules for opening of branches of foreign banks are restrictive in both Malaysia and Thailand. The regulators in Malaysia and Thailand are very strict in approving the branch expansion licences for foreign banks. So we are unable to convert our existing representative offices into full-fledged branches. An acquisition is, therefore, a better option to operate at a deeper level in the financial markets in these countries, he said. The official also said the plan would be finalised in the first quarter of the next financial year.

According to him, the fifth largest domestic bank is in the process of identifying the takeover targets in both the countries. Probably, the acquisition in Malaysia would happen first. Apart from the representative offices, BoB is also setting up a joint venture in Malaysia with two other state-owned banks Andhra Bank and Indian Overseas Bank. BoB is planning to invest Rs 160 crore towards its 40% stake in the Malaysian subsidiaryIndia BIA Bank Malaysia to be floated as a joint venture with 35% and 25% stakes from Indian Overseas Bank and Andhra Bank, respectively. The new venture would be operational by year-end.

In an interview with FE, BoB chairman and managing director MD Mallya had also confirmed the plan to scour the Asean markets. To me, the Far East region seems to be more lucrative than Europe or North America at the moment. We are open for suitable acquisition opportunities. (Since) We have got very strong presence in Africa across seven countries, we may not look at an inorganic growth there. Currently, the bank operates in 25 countries.

If the plan fructifies, it would mesh with Indias increasing engagement with the Asean bloc. The India-Asean Free Trade Agreement will come into force from January 1, 2010.

The bloc has already emerged as a major trading partner for India and accounts for about 10% of its global trade. In the last fiscal, bilateral trade between India and Asean was more than $40 billion and is slated to touch $50 billion next year. The Malaysian banking sector has been witnessing significant transformation in the wake of the current global meltdown, while some Thai banks are having difficulty in complying with capital-adequacy and other needs set by Bank for International Settlements are apparently open to take over bids.