HYDERABAD : As the year draws to a close, all eyes are on the proposed merger of Bank of Baroda, Vijaya Bank and Dena Bank. Announced in September, the merger was to be completed within 4-6 months and the merged entity was to commence operations starting next fiscal. While the boards of respective banks have approved the proposal in-principle, the actual challenge begins now, determining solutions for complex aspects including the swap ratio, organisational structure, integrating business, aligning customers and setting the way forward.
Importantly, all three banks have significant brand recall, but it’s unclear if the merged entity will be named afresh. While BoB’s chief P S Jayakumar’s term has been extended until next year, leadership continuity at the top-deck following the merger could be a challenge.
This is also the NDA government’s second attempt in banking consolidation, having tested the waters merging SBI and five associate banks last year. The move also comes months after the IDBI-LIC deal was announced, which is also the government’s attempt to revive the ailing banking sector.
What will possibly complicate the integration process is the organisational structure as the three banks have disparate cultures, unlike SBI and associate banks, all of which followed a four-tier structure.
Likewise, the business mix among these banks is varied, with the loss-making Dena Bank skewed towards MSMEs, and Vijaya Bank and BOB’s loan books relatively broad-based — the latter with higher retail exposure and a pan-India presence.
According to sources, the banks’ top management will decide on the share swap ratio within this month, which will be appraised to the government. Subsequently, the government will set the merger proposal in motion, for which the Bank Nationalisation Act will need to be amended. Sources also indicate that the proposal will be tabled in the upcoming winter session of the Parliament next week.
The merged entity, comprising two relatively stronger banks and a weak bank, will go down in history, irrespective of whether it succeeds or not.