Mumbai: Bank of Baroda (BoB), Dena Bank and Vijaya Bank had decided to set up internal committees that would help integrate their functions before they merged, said a person familiar with the development.
In a meeting today, the bankers also discussed appointing three separate valuers to decide share swap ratios, the person said. He added that each bank’s valuer would also assess the other two banks and a common ratio would be worked out and sent to the government.
The committees will comprise the three chief executive officers (CEOs) of the banks and executive directors.
“We have decided to form a few internal committees to integrate functions in the three banks. These include committees on credit, human resources (HR) and information technology (IT),” the person said, adding that the number of panels was flexible and a few more could be added as the process progressed.
This was the second meeting of the three banks after announcement of their merger.
Mint had reported on 3 October that although all three banks use Infosys’s Finacle core banking solution, they have different versions of the software. While Dena Bank and Vijaya Bank are on Finacle 7.2, Bank of Baroda recently updated to Finacle 10.2.
The government had on 10 September proposed the merger of the three state-owned banks. The merged entity, comprising two relatively strong banks and a weak one, will be the third-largest lender in India, after State Bank of India (SBI) and HDFC Bank Ltd, with total business of ₹14.82 trillion.
Following the merger announcement, the banks’ managements had assured staff that the government had each bank would retain its individual identity post merger.
Analysts are wary of the human resource (HR) complications. A research report by Kunal Shah of Edelweiss Securities said challenges in HR, process integration, branch rationalization, management bandwidth, would pose integration risks. “Roadblocks, for example, due to agitation from employees cannot be ruled out,” the report said.
A Kotak Institutional Equities note said it expected the transaction to take more than a year, implying the probability of negative surprises on asset quality (post-merger) should be largely contained. Analysts at Kotak Institutional Equities, led by M.B. Mahesh, said the merged entity would have more branches in western India than anywhere else. While there will be 2,205 branches in the west, the south and north will have 846 and 713 branches, respectively.
This is the third major restructuring in the public sector banking industry undertaken by this government. The first was the merger of the five associate banks of SBI with itself. The merger had resulted in a sharp jump in the combined entity’s bad loans portfolio, crimping its profit. The associate banks made a loss of Rs 5,792 crore for the March quarter of 2016-17 and Rs 10,243 crore for the entire year. This resulted in the consolidated net profit of SBI going down to a mere Rs 241 crore when the standalone net profit was Rs 10,484 crore.