Merger of Banks & you

The finance ministry rece­ntly annou­nc­ed merger of three public sector banks – Bank of Baroda, Dena Bank and Vijaya Bank. Financial services secretary Rajiv Ku­m­ar, in the ministry – that exercises oversight on all public sector banks – had stated that the merged bank entity would have better financial strength based on lower NPA ratio than average of 12.13 per cent for other public sector banks. The me­r­ged entity’s provision coverage ratio and cost to income ratio would also improve. Dena Bank, which is the smallest of the three, has a bigger share of NPAs.

The combined business of amalgamated entities wo­u­ld make it the second lar­gest state-run bank after State Bank of India. As of Ju­ne 2018, the combined business mix of these three ban­ks stood at Rs 14.82 trillion, deposit base Rs 8.41 lakh cr­o­re and loans Rs 6.4 lakh cr­o­re. The number of branc­hes would go up to 9,489 with 85,675 employees. The Bank of Baroda is the largest amo­ng the three and has a signifi­cant presence abroad and will add to the competitive st­r­ength of the other two.

Managements of these ba­nks have claimed that the employees would not be laid off. Borrowers will not be affected in any case. But questions have been raised on how depositors would be affected on several counts.

How will customers’ pre-merger chequebooks, post-dated cheques and ECS mandates be affected?

As the merged entity will also become a member of the cle­a­ring house at all locations managed by RBI/SBI, the cl­e­aring instruments would be handed over to the merged entity for the clearing proce­s­s­es. A definite timeframe would be given to customers of the merged entity to replace existing cheque books/ leaves with that of the mer­g­ed entity. But once the existing banks pass the board resolution authorising/ratifying the merger process, no new chequebooks would be issu­ed for sometime. The existing cheque books/leaves will continue to hold good for all banking transactions. All the existing ECS mandates wou­ld also be honoured by the merged entity.

How would UPI and mobile payment links of customers get affected?

All these banks are using common vendor core banking solutions software, which would be upgraded to solve these problems.

How will existing bank accounts get affected?

The existing bank accounts will continue to be serviced, albeit with new customer ID and account numbers. In the recent merger of SBI and its associate banks, even accou­nt numbers were not chan­g­ed. Only home branch IFSC (Indian financial system co­de) was changed.

What will be the impact on employees of merged banks?

The HR management of the merged entity may offer VRS (voluntary retirement sche­me) to willing employees in consultation with the staff un­ions. It is possible that ca­ses of senior employees nearing retirement or those who face vigilance cases could be reviewed and if the merged entity feels that it is not in the best interests of the me­rged bank to continue employing them, they may be offered VRS.

How will customers’ fixed deposits get affected?

The existing contracts of cu­stomers with the individual banks at agreed rates and not matured till the date of merger would continue to be enjoying the same fixed deposit rates; the merged entity wo­uld either replace such depo­sit receipts or encode a suitable superscription for the merged entity for easy identification.

How will standing instructions of account holders or bill payment mandates be affected?

Since IFSC could be chan­g­ed for all online payments, the software could be upgraded and as such, no problem/glitch is foreseen.

How will it affect borrowers?

Yes, they are likely to be imp­a­cted. There could be no review of the earlier decisions of the existing merging ban­ks. But once the loan accou­nt/running overdraft accou­nt becomes due for renewal, the bank may apply the revised eligibility criteria of the merged entity.

How will credit/debit cardh­ol­ders and their accumulated reward points be affected?

All existing customers of acquiring banks would be ask­ed to encash their reward po­i­nts with the existing bank before merger.

How accounts linked to I-T website, investment portals and insurance policies (for depositing claim and maturity proceeds) be affected?

Customers of the merged entity would have to be given no­tice of the change of ban­k’s name, branch name/address code, IFSC and bank account details duly verified by the merged entity and vari­­ous agencies/authorities wo­­uld be requested to incorporate new details in records and seek confirmation of su­ch incorporation. It could be a tedious process and may take time.

Did customers face such pr­oblems in the past like when Kotak Mahindra Bank acqu­ired ING Vysya Bank, SBI merged associates with itself, and ICICI Bank acquired Bank of Rajasthan?

This is not the first or last ti­me mergers/acquisitions are taking place. Earlier mergers have faced HR problems as also relocation/closure of br­a­n­ches of the acquired bank. It is a customer’s call to either continue account with the acquired bank or close that. There would be minim­al customer inconvenience as was seen in earlier mergers/acquisitions.

In earlier mergers/acquisitions, an existing single ba­nk got merged with a bigger bank (PNB/New Bank of In­dia; ICICI Bank/Bank of Rajasthan). In them, there we­re not much of software me­r­gers as bank computerisation was minimal. It’s the first time that an attempt is being made to merge two banks with one of the largest banks. It’s also the first time that a merger among nationalised banks is taking place. This attempt – merger of two banks with a third with the same software applications – could be a precursor to such mergers/acquisitions with more speed & numbers.
(The writer is managing editor of Consumer Voice and former dean and head of commerce, Delhi School of Economics)