Nedungadi Bank leaped on good buying support on Monday, after the Centre approved the private sector bank's merger with state-run Punjab National Bank.

Nedungadi Bank scrip spurted by 5.02% to Rs 11.50 on the BSE. by 12:40 IST. A record volume of 65,325 shares was recorded on the counter.

The rally on the NBL counter was purely due to reports that the Central government has issued a notification dated 31 January 2003, sanctioning the scheme of amalgamation of NBL with Punjab National Bank with effect from 1 February 2003.

Meanwhile, the PNB scrip also surged by 4.97% to Rs 75.

Analysts said the merger of NBL with PNB will be beneficial to both the banks. PNB's network is mostly concentrated in northern India. With the merger of NBL, it will be able to reach out to the southern region. On the other hand, NBL, which is technically owned by a stock broker-led group, will be set free of broker-led influences and vested interests after its merger. Most of the 183 NBL branches are located in the southern region.

Earlier, the board of directors of PNB approved the proposal of merging NBL. However, PNB said that it is not inclined to take over liabilities of NBL, which exceed Rs 35 crore and will place its claim before the Deposit Insurance and Credit Guarantee Corporation.

Meanwhile, the Reserve Bank of India has assured full protection of public deposits of NBL.

Earlier, the RBI drafted the scheme of amalgamation of NBL with PNB. According to reports, the draft, prepared by the apex bank gives details on treatment of deposits and advances and investments in the run-up to the merger. It also lists out the rights of shareholders, depositors, creditors and employees of NBL in the interim period before the merger.

NBL was put on the block after RBI initiated moves to weed out the broker-promoter Rajendra Bhantia from the bank. Bhantia and family hold 32% stake in the bank. As on 30 June 2002, the public, local institutions and foreign institutions held 55.31%, 1.33% and 1.21% stake respectively in the private sector bank.

On 2 November 2002, RBI had placed NBL under moratorium up to 1 February 2003, and restricted depositors from withdrawing more than Rs 5,000 during this period. 

Established in 1899 as a private sector bank in Calicut, NBL has been rendering financial assistance in a large way to small industries, peasants and traders since its inception. When the Reserve Bank of India Act, 1934 came into force, NBL was included in the Second Schedule.

The bank traditionally focuses on the retail segment. It has introduced several schemes to meet the requirements of this segment. The schemes introduced by the bank are Shatabdi Suraksha Savings, Shatabdi Suraksha Current, Mahila Soubhagya (for resident Indian women) and Aiswarya deposit.

Earlier, the bank engaged a renowned management consultancy firm, Pricewaterhouse Coopers, for framing a strategy and business planning programme for five years, aiming at redefining the bank's vision to incorporate the changing dynamics of the environment and to enable it to take a leadership position. The bank planned to increase its non-fund based income and income through treasury operations.

For the third quarter ended 31 December 2002, NBL registered a 66.2% fall in net profit to Rs 2.02 crore, compared to Rs 5.98 crore in the corresponding period last year. Total income decreased by 19% to Rs 41.66 crore, from Rs 51.38 crore in DQ 2001.

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