NextGen PSBs: Indian Bank-Allahabad Bank merger to boost scale of ops

There will be very little overlap in terms of branches or network, since the geography focus has been different, says Indian Bank's Padmaja Chunduru

Finance Minister Nirmala Sitharaman on Friday announced the merger of 10 state-owned banks to form four big banks. One among them was Allahabad Bank’s merger with Chennai-based Indian Bank. Managing director and chief executive officer (MD & CEO) of Indian Bank Padmaja Chunduru speaks to T E Narasimhan on how the merger will benefit the bank and the challenges ahead. Edited excerpts:

What is your view about the merger?

We are very happy. We did not lose our identity and Indian Bank is rightly recognised for its self-driven growth. In this whole merger, Indian Bank is the only medium sized public sector bank (PSB) taking over another bank. This is a recognition of the bank’s strength, be it financial, asset quality or capital. In the last 18 years, there was not even a year without profit. Even in this kind of volatility and NPA (non-performing assets) problem in the banking sector, Indian Bank stands out.

How would the merger help Indian Bank?

In the current scenario, scale is necessary to compete. Though Indian Bank is pan-Indian, the core business and base strength lies in the south. Similarly, for Allahabad Bank, though it is pan-Indian, the core focus was North and East. The merger will give us the scale (of operations), which is necessary currently. It will be a smooth process to integrate.

Will there be any cultural issues, overlapping of branches and technology problems?

There will be very little overlap in terms of branches or network, since the geography focus has been different. So far as technology is concerned, both the banks are on the same platform offered by TCS. Hence, it will not be a challenge. Cultural issues: Yes to some extent, they would be there, but we can handle them considering both the banks employees are well spread. Employees will be taken care of in terms of their package and their mobility. Employees will be getting better of the packages from the two banks. It should be a much bigger exposure for the employees with the bank becoming a global bank. (Merged entity will have 42,814 employees)

Allahabad Bank has been reporting losses and NPA is around 5.22%. Since the RBI has put a cap that net NPA should not be more than 6 %, how would it affect you?

Indian Bank’s net NPA was 3.75 per cent and Allahabad Bank’s 5.22 per cent as of March 2019. The amalgamated bank’s net NPA would be 4.39 per cent, so it will not be an issue. Besides, both the banks are taking steps to reduce the slippages and improve recovery. All loans above Rs 50 crore are well provided in Allahabad Bank, because they have been cleaning up since they were under prompt corrective action. Allahabad Bank is in good shape compared to what it was and after merger with Indian Bank, we can take the combined entity to new heights.

Any big advantage of the Allahabad Bank merger?

Allahabad Bank is strong in its CASA contribution at 49 per cent, while Indian Bank’s is 34 per cent. This is big plus, and the presence in the North and East is also its forte.

What is your vision for the amalgamated bank?

Post merger, it will be the seventh largest, going by the numbers in March 2019. We are expecting the merger to take place by March 31, 2020. In two years from the merger, we want to make it the fifth largest.

Does it require capital?

Post the merger, CRAR (capital to risk (weighted) assets ratio) ratio would be 12.89 per cent (it will be the highest among the four merged banks). We are looking at around 15 per cent growth as a combined entity, which would require growth capital. Besides the Rs 2,500 crore government capital, Indian Bank was planning to raise around Rs 2,000 crore through QIPs but that needs to be reviewed in the light of the proposal.