Here’s What Banking Chiefs Think Of India’s Plan To Merge State-Run Lenders
BloombergQuint spoke with the chiefs of banks on potential benefits the merger may achieve. Here’s what they said.
India announced last week a roadmap to consolidate 10 state-run lenders into four, bringing down the total number of such entities from 21 to 12.
The mergers—which were announced as part of an economic reforms package—would help in better management of capital, according to Finance Minister Nirmala Sitharaman.
BloombergQuint spoke with the chiefs of banks on potential benefits the merger may achieve. Here’s what they said.
United Bank: Merger To Unlock Synergies In Long Run Despite Hiccups
United Bank of India said its merger with Punjab National Bank and Oriental Bank of Commerce may create temporary challenges but will lead to better funding of mega projects and aid credit growth.
“All bankers should have been firing on all cylinders when the economy is facing a downturn,” said Ashok Kumar Pradhan, managing director and chief executive officer at United Bank of India. “Instead, a large amount of energy and management’s time will be dissipated on internal reconciliation and corrections,” he told BloombergQuint during an interview.
Fundamentally, it’s a good move but there will be some dislocations due to unintended consequences.
On Friday, the government announced its decision to merge Punjab National Bank with Oriental Bank of Commerce and United Bank.
After the merger, Punjab National Bank will become India’s largest state-run lender after State Bank of India. The combined business of all the three banks is 1.5 times higher than Punjab National Bank’s existing business, Sitharaman had said after announcing the merger plan.
The merged entity, Pradhan said, will get an exposure to fund mega projects in eastern and northeastern parts of the country where United Bank’s presence is concentrated. Also, the move may benefit customers on account of potential lower cost of operations due rationalisation in the process, he said.
Shares of the Kolkata-based lender rose as much as 8.7 percent to Rs 11.25 apiece—the highest in three months.
Watch the interaction with United Bank’s Pradhan here:
Syndicate Bank: Merger To Result In Technological Synergies, Pricing Power
One of the significant positives arising out of the merger is technological synergies resulting in lower costs, according to Syndicate Bank’s Managing Director and Chief Executive Officer Mrutyunjay Mahapatra.
“Syndicate Bank is already using an advanced version of i-flex core banking software which Canara Bank also uses,” Mahapatra told BloombergQuint in an interview. “Cost control is obvious here as internal team of Syndicate Bank has already learnt of problems in such a migration.” Syndicate Bank will enlarge the scope of migration to over 10,000 branches of the new entity, he said.
Canara Bank will take over Syndicate Bank, forming the fourth-largest public sector bank. The advance base of the merged entity will be Rs 6.61 lakh crore and its deposit base approximately Rs 8.6 lakh crore.
Syndicate Bank also foresees the exercise to result in pricing power. The combined entity will have more than 1,800 branches in Karnataka—surpassing even State Bank of India. The lender can consolidate its position in these regions avoiding unnecessary competition, he said.
Other Highlights From Interaction:
- This is touted as the best merger among those announced as both banks have low net non-performing asset ratios currently and would have one of the highest capital adequacy ratios (combined).
- CASA ratio has moved 4 percent points higher as of June.
- We will take a call on raising funds later as we have enough growth capital for now.
- June-ended quarter loss of Rs 980 crore was due to “aggressive” provisions. Our gross bad loans ratio came below 12 percent and net NPA ratio was below 6 percent in Q1.
- Typically these mergers take 6-9 months to take effect.
Shares of Syndicate Bank rose 3.7 percent intraday to Rs 33.50 each.
Union Bank: Best Time For Consolidation
It’s the best time to announce a banking consolidation reform as economy is facing a downturn and a revival is on cards, said G Rajkiran Rai, managing director and chief executive officer of Union Bank of India.
“We’re currently witnessing a cyclical downturn and we will see massive credit growth in next six months due to the government’s initiatives,” Rai told BloombergQuint. This is a proactive measure to prepare state-run banks to handle such “massive” credit growth, he said.
Union Bank of India will take over Andhra Bank and Corporation Bank. The combined base of advances of the merged entity will be Rs 6.39 lakh crore. The deposit base will stand at Rs 8.2 lakh crore, making it the fifth-largest public sector bank.
Other Highlights:
- No stress seen on NPA metrics and expected recoveries to improve asset quality of Union Bank.
- Capital ratio is above regulatory limit for combined entity.
- Capital coming in as recapitalisation package is to cater only growth needs.
Shares of the Mumbai-headquartered bank slumped 7.1 percent to Rs 54.65 each, its lowest since July 2014.