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)