In August 2019, the government announced plans to merge 10 public sector banks (PSBs) into four. The move included Allahabad Bank's merger with Indian Bank, creating the seventh largest public sector bank (PSB) with Rs 8.08 trillion on its books.
In an interview with T E Narasimhan, Padmaja Chunduru, MD&CEO, Indian Bank, said that the merger would be one of the most successful mergers in Indian banking. Edited excerpts:
How is the merger process (Allahabad Bank with Indian Bank) progressing?
It is going on as scheduled and we are sticking to our deadline. However, it is only after the government comes out with the notification that we will be able to decide on the share swap and the other details.
Employees, mainly from Allabahad Bank, have raised issues and concerns...
Initially, there were some issues as they were worried about job security, promotions, transfers among others, which are being addressed by me personally through town hall meetings. I spend about 20-25 hours attending these meetings. No employees, up to the middle level, will lose their jobs since there is hardly any overlap of branches. The perception of the staff has changed after these meetings. They are more optimistic now.
Any unforeseen challenges?
The actual test is the execution. Despite the best planning, you cannot rule out the unexpected. While products are similar in almost all the public sector banks, some tweaking is required. IT integration is a big challenge, but I think we are well prepared for that. We have hired the retired DMD of SBI, who handled the merger of the SBI subsidiaries with SBI.
What is the timeframe you are looking at for IT integration?
It will take 9-12 months and will have lots of cost saving synergy. Allahabad Bank has a few licenses like the general ledger from Oracle and it is a better system than Indian Bank's. Therefore we have decided to adopt the Allahabad Bank system. Additional licences are much cheaper than going in for a new RFP. A lot of hardware, such as servers, are available at the Indian Bank. These can easily accommodate the data of Allahabad Bank.
When do you think the merger will start paying dividends?
In terms of business, profits, and others, from 2022.
Does the merged entity require any capital?
For 10-12 per cent growth, we don't require any capital. If we want to grow faster, we have headroom in both tier I and tier II.
We expect (post merger) to touch Rs 10 trillion by 2022, which may require around Rs 2,000 crore capital.
Any advantages that you were not expecting, but which have come up with the merger?
There are lot of new things that have emerged. A larger balance sheet automatically enables you to give bigger loans to bigger customers. While the amount that the Indian Bank can lend at present has been restricted to Rs 3,000 crore per customer, the combined entity can disbuirse loans of up to Rs 5,000-6,000 crore. This will bring in the bigger customers and we will be able to have negotiating power in terms of pricing. We will also be able to syndicate the loans. Luckily, both the banks have not used the full exposure limits in all the big corporates.
Indian Bank has some tie-ups for cross selling insurance products, both life and general insurance. Allahabad Bank has an insurance subsidiary - Universal Sompo General Insurance. We assume it will be included in the merger and with that when Indian Bank also starts selling, it would be additional income for both the banks.
Indian Bank is strong in terms of business correspondents model and Allahabad Bank also has a strong network of business correspondents. Their model is slightly different, but it is a good model and may be we will replicate it in the next year. So, there is a lot of business they do through the business correspondents, which will bring down the cost.
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