Three-bank alliance comes alive

Oriental Bank of Commerce (OBC), Indian Bank and Corporation Bank today formed an alliance that would trigger rationalisation of their branch network and lead to their foray into investment banking, equity broking, venture capital, insurance and other financial services.

The three mid-sized public sector banks would collaborate in areas such as building an e-payment system, share information technology and treasury resources, said the chairmen and managing directors of the collaborating banks after signing a memorandum of understanding here.

"The three banks can get the benefit of working together without being one legal entity. There could be rationalisation at the level of branches due to use of technology," Indian Bank Chairman and Managing Director K C Chakrabarty said.

The Indian banking sector may see consolidation through more such alliances. The partners will have to figure out overlapping areas, each one's strengths (in business focus) and blind spots.

The first task before them would be bring synergy in their technologies including IT and data centres, said Swarup Choudhary, director (financial services sector) IBM.

This will make the three banks rework their business plans, especially the branch network expansion and technology systems. It may also trigger branch rationalisation to avoid overlap and gain benefits of synergy.

The alliance may use the merchant banking subsidiary of the Indian Bank as a vehicle for capital markets foray. OBC and Corporation Bank may acquire stakes in the merchant banking entity.

The combined business "� deposits and advances "� of three banks will be just over Rs 2,00,000 crore. They have a customer base of 3.3 crore customers, 3,600 branches and 1,800 ATMs. Even after providing a combined front, the banks still have just over five per cent share in the Indian banking space.

"The alliance expects to reduce intermediation costs due to economies of scale and share benefits with customers. It would provide all forms of money and financial services under one roof," OBC Chairman and Managing Director K N Prithviraj said.