Mega bank consolidation: Meeting April 1 deadline appears challenging

With the deadline of April 1 fast approaching for the mega merger of ten public sector banks, there seems to be more odd in the way of meeting the target date as a series of regulatory approvals and clearances are still pending, bank officials said.

Even after Cabinet approval to the proposed mega merger plan, officials said, fixation of share swap ratio, shareholders consent and other regulatory approvals are expected to take at least 30-45 days.

It is believed that the Prime Minister's Office (PMO) has sought details from these lenders about their financial projections for the next three to five years. Details in respect of NPAs, capital requirement, credit growth and cost savings on account of the mergers have been asked for, officials said.

So, chances of the merger becoming a reality beginning next fiscal year seems little unrealistic at the moment, a senior public sector bank official said.

Besides, regulatory nods, the Scheme of Amalgamation has to be laid before Parliament for 30 days for the perusal of the members. The second-half of the Budget session is scheduled to start on March 2.

Last year in August, the government announced the consolidation of ten public sector banks (PSBs) into four mega state-owned lenders.

As per the plan, United Bank of India and Oriental Bank of Commerce would merge with Punjab National Bank, making the proposed entity the second largest public sector bank.

It was decided to merge Syndicate Bank with Canara Bank, while Allahabad Bank with Indian Bank. Similarly, Andhra Bank and Corporation Bank are to be consolidated with Union Bank of India.

According to a seniorbanker, information technology integration of Vijaya Bank and Dena Bank with Bank of Baroda is still in process even after 10 months of merger. In addition, the HR issues still continues to hamper business, causing inconvenience to customers.

Moreover, the mega merger would create greater disturbance in the banking system and will affect the operation especially loan sanction as there will be chaos initially for few months, the official added.

Bank unions are also opposing the move saying merger is not a solution to the banking sector problem and slowdown in economy.

Rather than consolidation, there is a need for expansion, All India Bank Employees' Association (AIBEA) general secretary C H Venkatachalam said.

The past merger carried out by banks are yet to show results and the proposed massive consolidation exercise will be catastrophic for the banking system at this point of time when the economy is in a downturn, he stated.

Terming the government decision on consolidation as illegal,All India Bank Officers' Confederation general secretary Soumya Datta claimed that the decision was taken in the absence of full board.

There was no representation from officers and staff in the board of any of these ten banks so decision is illegal, he further claimed.

According to a senior official of Oriental Bank of Commerce, the grouping of banks in the consolidation plans does not appearto be logical as it would lead to large scale closure of branches than expansion of banking services.

For example, the official said the merger of Syndicate Bank with Canara Bank would lead to large scale closure of branches as both are Karnataka-based and have strong presence in South India.

The merger of Oriental Bank of Commerce with Punjab National Bank and Andhra Bank with Union Bank of India will have similar issues, the official said.

As regards IT platform, the official said, although the software system is same, versions are different. So the technology upgradation will take a minimum of nine months to two years, depending on the size of the banks.

However, Finance Minister Nirmala Sitharaman earlier this month said that she saw no reason to go back on the government's mega merger plan for banks.

I don't see any reason to go back or any reason (which is) particularly causing any delay in the notification. You will hear on it as and when a decision is made, she had said.

In December last year, RBI had opined that the country could create some global banking majors if the ongoing mergers of state-owned banks achieve desired impacts of creating stronger and well-capitalised lenders of global scale.

"The merger of PSBs is likely to transform the face of our banking sector with the emergence of stronger, well-capitalised banks aided by cutting-edge technology and state-of-the-art payment systems. Our banks have the potential to become global baking leaders," the Reserve Bank of India said in its annual report on 'trends & progress of banking 2018-19.

Banks may not be in a position to go the market now: United Bank CEO

United Bank of India, one of the oldest banks in eastern India, will be amalgamated with Oriental Bank of Commerce and Punjab National Bank on April 1. Ashok Kumar Pradhan, managing director and chief executive officer of the bank, spoke to Namrata Acharya and Ishita Ayan Dutt about the merger and issues like non-performing assets (NPA) of banks. Excerpts from the interview.

What is your assessment of the Budget, especially its impact on public sector banks?

As a banker, I feel, increasing the deposit insurance limit to Rs 5 lakh is a positive, but it will largely impact operating profit of banks. Regarding, recapitalization of banks, the government has assured that as and when required capital will be provided to the banks. It is expected that banks will raise money from the market. At the moment, given the position of the balance sheet of banks, they may not be in a position to go the market, shall look forward to credit offtake with overall feel good factor.

What is the progress of merger?

The process of merger is going smoothly. All the 34 committees have given their reports. It is being evaluated by the advisor (Meanwhile, the anchor bank has appointed one advisor). They will be in a better position to standardize/ harmonize, as they have the combined views of three banks.

Has the swap ratio been decided?

The valuation has been done, and some reconciliation process is on.

What are the broad recommendations of the committees?

All the banks draw guidelines from government of India. So the framework is same. What is needed is codification and synchronization of products’ features and processes to give clarity in the amalgamated entity.

What is the progress of IT merger?

The anchor bank is discussing with Infosys. Our GM, IT is also coordinating with that. We understand, Infosys is working for the merger of Bank of Baroda. Hopefully they have come out with some sort of solution for Bank of Baroda. If they find reasonable amount of success, then that should be carried forward, it will be easier for our merger.

What will be the cost of the merger?

Initially the cost will be mostly on IT integration. Rest will be intangible cost. The real picture will be clear after a year or so. There will be lot of savings also in terms of administrative cost. Overlap of branches in states like Punjab, Haryana, Himachal Pradesh and Delhi could be rationalised. OBC and PNB concurrently present in many pockets. It is not that we need to close the branches, but some of them can be merged and the licence which is freed can be utilized to open branches in other areas/pockets.

What is your view on the steps taken to boost credit growth in the last monetary policy?

I think, it was an excellent monetary policy. Definitively, credit growth will get a big boost.

Is agri loan a cause of concern?

Agri loan is a cause of concern. It is considered as a loan in perpetuity. Now the Regulator is suggesting that it should be liquidated and given afresh. We have suggested, a part of the loan be continued and the rest be closed/allowed again as is done now.

In the present scenario, what is the biggest concern of the banks?

Stalled projects is a major issue with the bankers. We need to find a solution to this problem. In the power industry alone more than Rs 2 trillion is stuck. Solution in power sector would unlock huge amount of funds.

How has been the credit offtake this financial year?

Credit offtake has been poor this financial year, 7-7.5 per cent for the banking sector. At UBI, we have been relatively better. In retail, our credit growth is 14 per cent. In MSME it is 7-8 per cent.

Ahead of merger, public sector banks advance promotions and transfers

Ahead of merger, public sector banks who are slated to be merged have advanced the promotions and transfers exercise to the present financial year. Normally public sector banks undertake the exercise in the beginning of financial year.

According to sources, promotions and transfers till scale four at officers’ level for the financial year 2020-21 is being decided by individual banks. Thus for the next financial year, even after the merger, no major changes in terms of transfers and promotions are likely to take place for the merged entity up to a scale four or chief manager. However, beyond scale four, transfers might take place on the basis of need, according to a senior official of a public sector banks.

Notably, in the last two years there has been hardly any recruitment in public sector banks. As a result, there will not be any need for voluntary retirement scheme.

Banks like United Bank of India and Allahabad Bank have already initiated the process of promotions and transfers. The banks are using automated assessment system to decide on promotions. For example, in case of United Bank of India, performance would be measured in terms of meeting lending targets, recovery and expense management among other things. The system will also have a process of referral and review by peers, juniors and seniors for objective assessment.

According to Ashok Kumar Pradhan, managing director (MD) and chief executive officer (CEO) of United Bank of India, a functional committee on HR integration is likely to finalise the modalities of the merger by the end of this financial year.

Under the mega merger plan by Union Finance Minister Nirmala Sitharaman, 10 public sector banks would be consolidated into four. Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to form the nation’s second-largest lender; Canara Bank and Syndicate Bank will merge; Union Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will merge with Allahabad Bank.

The consolidation exercise will bring down the number of nationalised public sector banks to 12 from 27 in 2017.

According to data from Reserve Bank of India, as on 31st March 2018, the total number of officers in public sector banks was around 200,000.

Apart from human resources, IT is another challenge in the merger process, say bankers. While the merger of balance sheets may be achievable by April 1, 2020, IT integration could take more than a year after the formal merger notification, according to the public sector banks.

However, at the clerical level, there is still lack of clarity among employees in terms of transfers, said Rajen Nagar, President of AIBEA (All India Bank Employees' Association).

34 functional teams formed to smoothen process of PNB, OBC, UBI merger

A total of 34 functional teams have been formed to smoothen the process of merger of United Bank of India (UBI), Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC), a senior official said.

The merger is scheduled to come into force from April 1 next year.

"Thirty four functional teams have been created to come out with solutions for the process of integration," a UBI official told PTI.

A team comprises two members each from the three banks from different functional areas, he said.

"The functional teams will also try standardising the loan process, credit terms and benefits extended to the customers in the interim period till the merger comes into effect to avoid customer-related issues in the future," the official said.

The UBI had conducted customer meets at Kolkata, Guwahati and Patna to allay their apprehensions about the future of banking, the official said.

UBI managing director and CEO A K Pradhan had earlier said that though the balance sheet merger is likely to happen by April 1 next year, it will take another three to six months after that for the HR and IT integration to be completed.

He had said the complete harmonisation among the three entities would take another 12 to 14 months after the merger.

Senior officials of the three banks had held a meeting recently.

The merger will make the new entity the second-largest bank in the country after the State Bank of India (SBI) with a total business volume of Rs 18 lakh crore.

This comes after the Centre's announcement to consolidate 10 public sector banks into four.

Allahabad Bank will be merged with Indian Bank while the Union Bank of India, Andhra Bank and Corporation Bank will be amalgamated.

Canara Bank and Syndicate Bank will also be merged.

Last year, the Centre had approved the merger of Vijaya Bank and Dena Bank with Bank of Baroda that came into effect from April 1 this year.

In 2017, the State Bank of India had absorbed five of its associate banks and the Bharatiya Mahila Bank.