All three banks combined would have a total loan book of Rs 6.40 lakh crore and total deposits of Rs 8.41 lakh crore, making it the third-largest bank in India. Total branches will increase to 9,489. But many of these branches could be overlapping, which means they may have to cut branches that are near to each other.
“Integration and rationalising people will be major challenges in this three-way merger. All three banks are on the same core banking system which makes it easier,” said Kuntal Sur, partner, financial risk and regulatory leader at PwC. “The merger also gives them more room to lend to the top companies and makes capital requirements simpler. However, the combined entity will have a total of 85,675 employees which will have to be taken into account.”
A government statement said the merger will lead to synergies of a shared network, low cost deposits and subsidiaries. The merged bank will have a current and saving account ratio of 34.06% and capital adequacy of 12.25%.
The government has assured that the brand equity of all three banks will be preserved and capital support to the new entity will be provided. The merger’s rationale is increase in customer base, market reach, operational efficiency, and wider bouquet of products and services to customers.
But analysts said the real test of the merger will be the ability to expand business.
“This is not a big-bang merger, rather the government has decided to go via a step-by-step approach. It will lead to operational synergies but how they handle the human resources will be a challenge,” said Karthik Srinivasan, vice-president at ICRA. “The visible impact of this move will take time to fructify but the ultimate test will be how they scale up business and fasten credit growth, which has been an issue with banks.”
Sur said the merger’s success will also depend on how quickly these corporate-focused banks use their network and tilt toward retail. “Bank of Baroda was trying to shift toward retail lately but both Dena and Vijaya were predominantly corporate-focused banks,” Sur said, adding, “They can use their network to expand on the retail front. Clients of Dena and Vijaya will also benefit from Baroda’s branch network abroad.”