The easiest step in a merger is the combining of balance sheets. After this, integrating the treasury is also relatively easy, as also the merger of ATM networks.
However, integrating two networks on different IT platforms into a common one is tougher than setting up a new bank from scratch. This is even though the government has chosen banks based on common IT platforms.
It was Arundhati Bhattacharya who, as chairman of State Bank of India (SBI), led the lender during the merger of associate banks with itself. According to her, although the then merging banks were associates of SBI, each had their own culture and 242 pieces of technology that needed to be integrated despite being on the same platform.
“We had created a portal for employees to address their issues and were getting 200 queries a day. It is also important to communicate to customers to address their fears that they may not get the same personalised service,” said Bhattacharya. She added that, for the benefits of the merger to flow, it would take two years. By then, staff rationalisation happens due to attrition and branches start selling the same products.
Incidentally, technology is also a big opportunity for the merging banks as the scale of operations will justify larger investment in IT where these banks have been lagging.
Earlier this year, BoB managing director P S Jayakumar had said that the core banking integration would take 12 to 18 months despite all banks using Finacle (the core banking product from Infosys). Although banks had bought the same product, the versions are different.
In the latest merger of 10 banks into four, some of the lenders will need large-scale rationalisation of branches. For instance, Canara Bank and Syndicate Bank — both being based in the state of Karnataka — have an overlapping branch footprint in a number of places.
A former official who was at ICICI Bank at the time of its merger with Bank of Madura in 2000, said that the biggest challenge was cultural integration. Since Bank of Madura had more operating offices than ICICI Bank, it was difficult to enforce the more efficient culture of ICICI Bank. “You may have the best business strategy, but culture eats strategy for breakfast,” he said.
“Technology is a prime consideration in banking consolidation and therefore mergers have been decided on the basis of the technology platforms of the banks. With diverse cultures prevailing across public sector banks, it is imperative that the leadership assigns top priority to aligning its culture into one, which could be most adaptable in the merged entity,” said Khushroo Panthaky, director at Grant Thornton.