MUMBAI: The second wave of bank mergers, contrary to the traditional modes of consolidation, has been based on technology integration rather than geographical compatibilities.
The amalgamated entities will, as a result, have strong regional presence even as their cost of operations would reduce on the back of branch rationalisations due to overlaps.
“We want to create big banks with strong national and global presence…the major thrust has been on ‘next gen’ technology features,” said Finance Minister Nirmala Sitharaman. “We have given a lot of mind application into the fact that the integration of fintech operations that these banks are into will be such that there will be no disruption to customers.”
Explaining the rationale behind the selection of banks for mergers, Sitharaman said that while large overall capacity of one bank was chosen, the technology driven capacity of the other and the deposit franchise of the third was identified before the list for mergers was chalked up.
Additionally, having learnt from the experience of the merger of Bank of Baroda with Dena Bank and Vijaya Bank, where challenges were faced during technology integrations due to mismatch in operating systems, the government has also taken clear steps to ensure that only those banks having compatible technology platforms are merged.
“We have taken clear care that the platform they are using is compatible. Technology in bank one, bank two and bank three are compatible, leading to realisation of gains and without any disruption in services…. (They) are being merged,” Sitharaman said.
Of the 10 banks that have been merged, two merged entity will have a strong presence regionally and the other two would operate as pan-India players. While the combined entity of Punjab National BankNSE -0.23 %, Oriental Bank of Commerce and the United Bank will have a strong presence north of Vindhyas, merger of Canara and Syndicate BankNSE 6.60 % will give way for a lender with strong presence in Karnataka and Kerala.
“Two confluences of events—it seems to be that it is working in multiple ways and not just in technology, but also complimentary of markets and culture,” said P S Jayakaumar, MD and CEO, Bank of Baroda.
The merger of Andhra Bank, Corporation Bank with Union Bank and the merger of Allahabad BankNSE 4.44 % with Indian Bank will create broader national entities with their almost uniform presence across the country.
The finance minister also said that the complete potential of consolidation is being aimed as these banks would be able to save costs of operations through rationalisation of those branches which have overlapping presence.
“The merged entities would have a high CASA and lending capabilities, and cost cutting capacity would be realised with those branches that are overlapping,” Sitharaman said. “The scaling up and reduction in cost of operations will result in reduced lending costs as well.”