State-run bank mergers: How tech platform sealed the fate – Times of India

NEW DELHI: For the last six months or so, officials in the department of financial services and the public sector bank brass had been brainstorming to move ahead with the long-pending consolidation plan. But it was not until Friday afternoon that even the bank chiefs were informed about the combinations that had been worked out by the government.

Finally, it was technology that settled the issue for at least four banks — Canara and Syndicate and Indian Bank and Allahabad. While Canara and Syndicate Bank were on the iFlex core banking system, Indian and Allahabad banks used BaNCS, prompting the finance ministry to go for these alliances for a smooth merger.

Big bank theory: 10 PSBs merged into 4 large entities

The merged entity comprising Punjab National Bank, Oriental Bank of Commerce and United Bank of India will become the second largest lender after SBI. The merger of Canara Bank and Syndicate Bank will create the fifth largest lender, with the Union Bank, Andhra Bank and Corporation Bank amalgamation at number six, based on business at the end of March 2019.

That left the government with the option to merge six entities that were on the Finnacle CBS platform into one, to create a mega entity, which it realised would be tough to manage. So, it opted to merge three entities each. But even here, there were several calculations at work, including political considerations.

While the government decided to bite the bullet on the banks headquartered in Kolkata, when it came to Bank of Maharashtra, the state elections were a factor that came into play in leaving it untouched, at least for the time being. It may have been a reason for leaving Bank of India and Central Bank of India to operate on a standalone basis, sources indicated. The attachment of the Sikh community to Punjab & Sind Bank meant that the government did not want to push its consolidation and retain the identity of the lender, where the unwritten rule is to have a Sikh chairman or managing director.

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PSB mergers: Technology, HR synergy key challenges

While the easiest step in merging public sector banks (PSBs) is combining of balance sheets, the biggest challenges include the integration of technology platforms and managing HR & cultural issues, say bankers who have gone through a merger exercise. After this, integrating the treasury is also relatively easy, as also the merger of ATM networks.

But when it came to the six that had to be merged, various permutations and combinations were used to decide on the exact combinations. So, United Bank of India’s strong current and savings bank account (CASA) base of 51% against Oriental Bank of Commerce’s 29% meant that they could complement each other. Similarly, there were geographical considerations too. Punjab National Bank and OBC had a strong presence in the North but were largely missing from the East and the Northeast, where United Bank is deeply entrenched.

PNB’s return to profit paved the way for it to play the anchor in one of the merged entities. In the previous round, Bank of Baroda was asked to take the lead as PNB was bleeding due to a massive NPA pile and the fraud orchestrated by Nirav Modi and Mehul Choksi.

In case of the other three-way merger involving Union Bank, Andhra Bank and Corporation Bank, there are several synergies at work.



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