Big bank theory: Bank of Baroda looks to corner 10% market share after mega merger

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Updated: April 2, 2019 7:43:07 AM

The government recently announced it would infuse as much as Rs 5,042 crore through preferential allotment of shares though Jayakumar suggests the entity sees no immediate requirement for a cash infusion.

Pre-merger, BoB’s target was to reach 2.7% in terms of net NPA by october this year, though he adds if the combined entity could achieve 3.5% net NPA by year end, it would be a great achievement.

Bank of Baroda, the combined entity after its merger with Vijaya Bank and Dena Bank, aspires to have a market share of 10% against a current aggregate market share of 6.5%, PS Jayakumar, managing director and chief executive officer of Bank of Baroda, said on Monday. Other metrics of success that the new merged entity has set include a 15% growth CAGR and a return of assets close to 15%.

The merger came into effect on Monday to create India’s third-largest lender after State Bank of India and HDFC Bank.

Jayakumar believes successful amalgamation could come about when employees and customers identify themselves as part of BoB, which could take up to three years.

In a bid to accommodate more than 85,000 employees within the merged entity, and given the sheer size of the organisation, the bank would entail further changes to BoB’s pre-merger structure, which includes moving from being a three-tier entity.

However, Jayakumar does not deny the need for branch rationalisation, indicating, “There will be no closures, but there will be relocation. However, if there are closures, they would have happened regardless of this amalgamation. Sometimes, we make a wrong decision and we have to close it, this happens all the time… We’ll probably have 10-12% of the branches that you could say we would not need them. However, the fact is also true that in many markets, which are sizeble, Bank of Baroda doesn’t have a presence.”

Despite the amalgamation, Jayakumar does not see any reduction in jobs though he does not rule out natural retirements, which could be roughly 3.5% of the population.

Jayakumar refused to commit to a number on how the merger aids the bank with cost savings though he expects to come back with a revised strategy that would show that the results are better than the sum of its parts by May-end.
In terms of asset quality, the net non-performing asset figure for the combined entity stands at `30,000 crore or 4.8% of total advances, while BoB’s NPA alone stood at around `18,000 crore. However, Jayakumar believes the bank is reaching the end of the NPA cycle and entering a more robust recovery cycle, indicating a good FY20 & FY21.

Pre-merger, BoB’s target was to reach 2.7% in terms of net NPA by october this year, though he adds if the combined entity could achieve 3.5% net NPA by year end, it would be a great achievement.

The government recently announced it would infuse as much as `5,042 crore through preferential allotment of shares though Jayakumar suggests the entity sees no immediate requirement for a cash infusion.

Jayakumar added that the entity is well-placed to raise funds from the market with various instruments at its disposal, including employee stock options and AT1 bonds and if required the ability to raise funds through sale of non-core assets, each of which, he suggests, are pockets with potential to raise anywhere between `1,200 and `1,500 crore. “We have been working on the employee stock purchase plan, which we didn’t execute as we thought it is much better to do it with the combined entity. We are not dependent on any external capital for growth. If the government allots us some capital, we’ll take it, and if not, we are not predicated towards it.”

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