Bank Merger to Create Banks that are Immune to Mitigating Solvency Problems in Downturns, S Ravi, the Former BSE Chairman

When public sector banks merged including the Punjab National Bank, nearly every individual was worried about his savings and even fixed deposits with the public sector banks. As per the former BSE Chairman, these mergers come with a huge impact on the fixed deposit holders, savings account holders, employees, shareholders, borrowers, and the public.

Sethurathnam Ravi (S Ravi) is the former BSE Limited Chairman and Founder and Managing Partner of Chartered Accountants’ firm Ravi Rajan & Co., an advisory and accountancy firm, headquartered in New Delhi, India. In his tenure spanning more than three decades, S Ravi has gained extensive experience in the field of banking and finance, financial and management consulting; including mergers and acquisitions, valuations, rehabilitation & restructuring of companies and turnaround strategies, auditing of companies and banks among others.

According to S Ravi the former BSE chairman, some challenges come across during the bank merger. The impact of these mergers goes deeper than just what is visible. The amalgamation scheme includes the merger of Indian Bank with Allahabad Bank; Oriental Bank of Commerce (OBC) and United Bank of India with Punjab National Bank (PNB); Canara Bank with Syndicate Bank; Andhra Bank and Corporation Bank with Union Bank of India. The merger announcement itself is a bold step considering that Ten PSU banks are involved in the process involving 3,08,732 employees, Rs. 31,79,304 crore deposits, around 37,492 domestic branches and 45,448 ATMs.

These mergers impact deposit holders, shareholders borrowers, employees and the public at large. The rationale for these mergers has been spelt out. It is to create larger banks so that they are more immune to mitigating solvency problems in downturns.

The biggest impact of this merger is of course is the emotional uncertainty that will play on the minds of the bankers themselves. When you have spent an entire career in one place it can be very unsettling to leave. The second thing is uncertainty on the career front because someone will suddenly be dropped into a new ecosystem especially for those coming from the smaller bank. That is a very big challenge. There will be a lot of learning and re-evaluation that will need to take place.

In the case of customers, they will have to look at it in a very different way and that will need to be articulated by the new banks, says the former BSE chairman. The choice for the customer is stark. S Ravi believes that customers will move to safer banks.

S Ravi thinks that customers have seen that the government has pumped in a lot of money into the banks and they will see that the government is supporting these banks. From a customer viewpoint, you feel safer and even as borrowers, the smaller weaker banks were not extending credit and now that situation will change. At the same time, the powers will be realigned. Hypothetically, a General Manager in Allahabad Bank had the authority of over just Rs 50 crore, now as part of Indian Bank, he or she can manage Rs 200 crore. The decision making will become a lot faster and that should help the small to medium segment of businesses.

In a deeper analysis by S Ravi, the former BSE chairman, he says that the branch consists of 8-12 people and those jobs are going nowhere because the brick and mortar will remain the same. Some banks might have branches next to each other and some realignment might happen, but people will not lose jobs. Also, the skillsets of bankers are changing. There will be a lot of demand for the younger people who are more aware of aspects like digital banking. Also, one has to remember that other than HDFC bank, most of the private sector banks in India have had their challenges. One must not think that it is only the PSU banks that are in trouble.

According to S Ravi, the single most important aspect is the emotional aspect. The bank employees have to be taken care of, how do you hold their hands through the entire process is one major area of concern. S Ravi says that he would set up task forces for all these major challenges. There is another huge challenge as well, in the IT space, just to collect and sanitize data. The margin money is different for different types of borrowers in different banks, now collecting that data is important and should have a dedicated task force behind it and then finally make a decision.