The challenges behind Bank of Baroda, Vijaya

Bank & Dena Bank merger [Banking]

Rangan, MC Govardhana; Rebello, Joel . The Economic Times ; New Delhi [New Delhi]06 Dec 2018.

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When an experiment begins, the scientist hardly knows what the outcome will be. In a moment of adventure or
necessity, the government put three men - PS Jayakumar, RA Sankara Narayanan and Karnam Sekar - in a boat
and set them on sail into uncharted territory.
These men who head Bank of Baroda, Vijaya Bank and Dena Bank may face many a storm and choppy waters in a
journey that could in a few years make them either look like Christopher Columbus who found the new world, or
land in no man's land like Robinson Crusoe.
When the numbers are put out on an Excel sheet, the easiest way to analytical glory, the merged entity is the
second-largest by assets. But life on the integration ground is the opposite of what appears on the Microsoft Excel
file. Mergers are probably the most glamorous in the world of business, but history is as much about bitter
divorces like Chrysler-Daimler as they are about romantic rides like Procter &Gamble's with Gillette.
As with most marriage proposals, there's optimism about this too. "I look at the merger positively," says Aditya
Puri, chief executive officer of HDFC Bank, the most valuable lender. "I think it will lead to cost, product and
technology efficiencies. It is easier to manage."
MAMMOTH TASK The task at hand for the three men is of monstrous proposition. In any merger, the biggest
challenge is that of personnel. While in the private sector, the easiest action for the management is to lay off
people to derive cost savings, that option does not exist for the three CEOs. There are 90,000 staff whose future
has to be protected and concerns addressed. "There are three top reasons for the failure of any merger, one of
them is the way HR gets integrated," says PS Jayakumar, CEO of Bank of Baroda, the biggest of the three. "We are
very conscious of this. But there are some commonalities as well... like interview processes are similar, owner is
similar, organisation structure is the same kind, so there are a lot of things that are common as well."
There are multiple data centres that handle more than 10 crore customers across three banks that need to
converge. For the moment, the three banks operate on three different technology platforms which appear to be
easy to integrate but difficult to execute. "Technology integration in theory is easy to achieve but in practice it will
require a lot of hard work like just getting a new account code for all customers and communicating that will not
be a simple thing," says Jayakumar.
"Replacement of cheque books will not be simple. RTGS, NEFT details and net banking interface will take time to
change." The merged entity will have about 9,489 domestic branches which looks like a great leap forward, but of
this nearly 10%, or 941, branches are in the same pin code, which needs to be reduced without much staff
resentment.
THE SYNERGIES One of oddities of Indian banking was a single owner, the government, dominated nearly 80% of
the industry which is near monopoly, but the problem was it was spread over 21 different entities that neutralised
the advantages, the dominance would have brought it. "Why do you need so many banks with the same parentage
competing against each other, killing each other in terms of under cutting etc.?'' says Ravneet Gill, CEO, Deutsche
Bank, India.
Because of the single owner, the incentive for different entities to compete strongly and innovate did not exist
either. Whatever each bank achieved, it was more an enterprise of individuals rather than any institutional vision.

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While the mixture of personnel with different cultures from Dena, Vijaya and Baroda could cause some friction, the
advantages that would flow are many.
"It will give them more job opportunities so that there is no shortage," says HDFC Bank's Puri. "Given the retirement
that is coming, there is going to be a shortage of manpower. If you merge these three, then you don't have to have
layoffs and it automatically brings in cost efficiency." Handling of staff would determine whether they become an
asset or a liability, but the existence of so many overlapping branches like BoB's first Mumbai branch in Horniman
Circle, a century old, that sits opposite sprawling Dena's.
These could be merged and allocate excess staff to suburbs, probably closer home. In Maharashtra alone, the
merged entity's branch network would rise by 400 to 950. Cost-cutting could be huge. In fact, BoB has already
proven by reducing the number of auditors to just about 30 from nearly 1,400. In the merged entity, the
procurement of technology, telecommunication could bring down costs.
"We just need to ensure these synergies get captured," says Jayakumar. "We have to have a clear plan on how to
do it but also some patience. There may be short-term pain but the long-term gains will not take far long to
manifest themselves." State Bank of India's merger of five associates with itself and ING Vysya's merger with
Kotak Mahindra Bank are recent examples that these three could draw from.
While the size of integration of SBI associates was mammoth - almost merging ICICI Bank with SBI - the
combination of ING Vysya with Kotak shows the challenges. A top Kotak executive involved with the integration
then, Mohan Shenoi described the process best. "The merger process, according to me, was like servicing and
upgrading an aircraft while it is flying," Shenoi told ET in an interview last year. "So, we had to ensure that business
as usual should go on, not on one side but on both sides."
Kotak faced issues of staff integration and had to create a bad bank to dispose off the defaulted loans. It also had
to take a knock on pension provisions.
DIFFERENT STROKES It is a merger of banks from the same stable, but there are strengths and weaknesses that
would play out and complicate as well. "A lot is riding on the success of this merger because a failure will mean
that this whole consolidation process will be put on the back burner," said Gopal Jain, managing partner at private
equity fund Gaja Capital, which was one of the earliest backers of RBL Bank.
Over the past three years, Jayakumar along with former chairman Ravi Venkatesan had initiated a lot of changes,
including lateral hire, changes to human resources policies that prioritise merit. Its leadership programme focused
on enabling technology absorption along with refurbishment of branches into paperless offices and ending the
steel cupboard culture are a welcome relief to both staff and customers.
"BoB has gone through a transformation," says Vikramaditya Singh Khichi, executive director at BoB and a former
Dena Bank executive. "The systems and procedures have been set to lay out a path going forward. This integration
part is now going to move in only the direction BoB is moving." Vijaya and Dena are small and saddled with bad
loans, but they come with strengths too. Vijaya is retail focused and profitable and was the only state-run bank
that paid dividends last fiscal.
Dena though in Prompt Corrective Action with restricted lending, has a portfolio of small and medium enterprises
that could be coveted. "Bank of Baroda will remain on course with the strategy set in the last three years... it's
working well and we have to do more to accomplish the goal," says Jayakumar. "As we get our programmes
together, there will be good success- transfer opportunities so that we will end up with an institution that is more
than the sum of its parts." The government's experiment has just begun.

DETAILS

Subject: Chief executive officers; Bank acquisitions &mergers; Banking industry; Cost control;
Branch banking

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 Location: India Mumbai India

People: Columbus, Christopher (1451-1506)

Company / organization:
Name: Bank of India; NAICS: 522110; Name: Vijaya Bank; NAICS: 522110; Name:
Procter &Gamble Co; NAICS: 311919, 322291, 325412, 325611, 325612, 325620;
Name: Microsoft Corp; NAICS: 334614, 511210; Name: Bank of Baroda; NAICS:
522110; Name: ICICI Bank; NAICS: 522110; Name: Deutsche Bank AG; NAICS:
522110, 551111

Publication title: The Economic Times; New Delhi

Publication year: 2018

Publication date: Dec 6, 2018

Publisher: Bennett, Coleman &Company Limited

Place of publication: New Delhi

Country of publication: India, New Delhi

Publication subject: Business And Economics, General Interest Periodicals--India

ISSN: 09718680

Source type: Newspapers

Language of publication: English

Document type: News

ProQuest document ID: 2150020584

Document URL: https://search.proquest.com/docview/2150020584?accountid=187781

Copyright: Copyright Bennett, Coleman &Company Limited Dec 6, 2018

Last updated: 2018-12-05

Database: ABI/INFORM Collection

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