The proposed merger of Kolkata-headquartered Allahabad Bank and Chennai-based Indian Bank will make the merged entity the seventh largest bank in India.
Allahabad Bank feels that its proposed merger with Indian Bank would reap rich benefits if operational synergies between the two state-run lenders are achieved as soon as possible, as bringing in synergy in operations is going to be a ‘critical factor’.
The proposed merger of Kolkata-headquartered Allahabad Bank and Chennai-based Indian Bank will make the merged entity the seventh largest bank in India. Total business of Allahabad Bank at the end of first quarter of the current fiscal stood at Rs 3.78 lakh crore, while that of Indian Bank was at Rs 4.26 lakh crore. Indian Bank has around 2,870 domestic branches, and the Kolkata-based bank has around 3,200 branches.
“It is good in the sense that the merger will bring in a lot of more synergies because two big banks are getting merged. The two banks are roughly of equal size. The core banking platform is same for both the banks,” Allahabad Bank executive director K Ramachandran said. For the merged entity, total business would be Rs 8.08 lakh crore.
Speaking to FE, Ramachandran said it is “good” that the two lenders operate in totally different geographies.
“We are predominantly present in the north and east, and they are present in the south. We are present in the Indo-Gangetic plain — UP, Bihar, Jharkhand, Chhattisgarh and West Bengal. And, they are present predominantly in the southern states. So, that way it is good,” he said.
Watch Video: How To File ITR-1 for AY 2019-20 in less than 15 minutes
Some industry insiders, however, have expressed concern over the government’s decision to merge Allahabad Bank into Indian Bank as the two lenders have completely different areas of operations and organisational culture.
According to Ramachandran, best practices within the two lenders, in terms of banking procedures, policies, products and services, will be followed in the merged entity for better results. “Only we have to see the broad contours — how will the merger take place? What are the best practices both banks have to be synergised for better results? Each one has its own products and services. We have to see whichever is good, and ensure that it gets adopted for the merged entity.”
The Allahabad Bank executive director emphasised that bringing in synergy in operations between the two public sector banks would be a “critical factor” in the merger process. “We should bring synergy in operations as soon as possible. Because if we are able to bring the people to work together, then we can reap the benefits better,” he averred. Notably, the merged entity will have total employee strength of 42,814.
Ramachandran said as the merged entity’s size will be bigger, the management will have to decide on the subjects like organisational structure to be put in place to manage it, as well as risk management practices. He believed that HR-related issues would not crop up during the merger procedure.
“The merger will happen this fiscal definitely. On April 1, 2020, I think the merged entity’s balance sheet will be available,” he said, adding the merger will give the new entity ‘scale’ to pick up lending. Further, Indian Bank will get Rs 2,500 crore capital infusion from the government as part of the upfront release of Rs 70,000 crore capital for public sector lenders.
Notably, the merged entity will have a net non-performing asset ratio (NPA) of 4.39%, while 12.89% CRAR. “Any resolution from NCLT will definitely help in improving the NPA position as well as the profitability,” Ramachandran added.