Banks Fear Brand Loss Post Merger

As more small pub­lic sec­tor lenders face con­sol­i­da­tion, they urge fi­nance min­istry to en­sure that their names sur­vive

The Economic Times - - Economy: Macro, Micro & More - Dheeraj.Ti­wari @times­group.com

New Delhi: The gov­ern­ment is look­ing at con­sol­i­da­tion of at least two state-run banks in this fi­nan­cial year, but some of the lenders iden­ti­fied for merger or takeover by big­ger en­ti­ties have ex­pressed se­ri­ous reser­va­tions on their iden­ti­ties be­ing sub­sumed in the process.

The tar­get banks are keen that their names sur­vive the con­sol­i­da­tion and they con­tinue to have a strong role in busi­ness op­er­a­tions, of­fi­cials said. Ear­lier this year, four state-run banks – Syn­di­cate Bank, Ca­nara Bank, Vi­jaya Bank and Dena Bank –made pre­sen­ta­tions to the fi­nance min­istry on their con­sol­i­da­tion plans. “We have worked out some com­bi­na­tions. This in­volves a larger bank tak­ing over two smaller en­ti­ties. Also, there is a case for merg­ing two smaller but strong banks. We can look at some hy- brid names which re­tain char­ac­ters of the both banks,” said a gov­ern­ment of­fi­cial, who did not wish to be iden­ti­fied.

The of­fi­cial cited the case of the merger be­tween Cen­tu­rion Bank and Bank of Pun­jab that led to the cre­ation of a new en­tity, Cen­tu­rion Bank of Pun­jab, which later merged with HDFC Bank in 2008.

Se­nior ex­ec­u­tives of the banks be­ing con­sid­ered for con­sol­i­da­tion have told the fi­nance min­istry that the brand names of the lenders have deep-rooted as­so­ci­a­tion with their bor­row­ers and the loss of brand names could po­ten­tially af­fect busi­ness. Vi­jaya Bank, for in­stance, was set up in 1931. Syn­di­cate Bank, set up in 1925, was ear­lier known as Ca­nara In­dus­trial and Bank­ing Syn­di­cate Ltd.

Experts, how­ever, said the merger ex­er­cise should not be de­layed only be­cause of brand is­sues.

“These are state-run lenders. The bor­row­ers are aware of this and there is no pos­si­bil­ity of los­ing busi­ness just be­cause a lender rein­vented its brand name,” said MP Sho­rawala, a former in­de­pen­dent di­rec­tor with Cen­tral Bank of In­dia. “We al­ready have a suc­cess­ful ex­am­ple in case of Axis Bank.”

In 2007, UTI Bank rechris­tened it­self as Axis Bank. “The idea was to get a grasp on the is­sues which could come up dur­ing the merger ex­er­cise,” the of­fi­cial cited ear­lier said, adding that some of the fac­tors taken into con­sid­er­a­tion for merger are the busi­ness mix, the in­for­ma­tion tech­nol­ogy plat­form that the banks are oper­at­ing on and the ge­o­graph­i­cal spread.

In April, State Bank of In­dia ab- sorbed five of its as­so­ciate lenders and Bharatiya Mahila Bank, cre­at­ing a larger bank that ac­counts for a quar­ter of all out­stand­ing loans. There are 21 state-run banks in In­dia.

In June, after re­view­ing the quar­terly per­for­mance of pub­lic sec­tor banks, fi­nance min­is­ter Arun Jait­ley said the gov­ern­ment was “ac­tively work­ing” to­wards con­sol­i­da­tion but did not share any de­tails, stat­ing this was price-sen­si­tive in­for­ma­tion.

The gov­ern­ment is also un­der­tak­ing a si­mul­ta­ne­ous ex­er­cise to as­sess the cap­i­tal re­quire­ments of state-run banks. “We are wait­ing for the first quar­ter re­sults. Once that hap­pens, we will al­lo­cate fur­ther cap­i­tal based on their re­quire­ments,” Jait­ley had said at the time.

While the gov­ern­ment has al­ready al­lo­cated ₹ 8,000 crore -- the spillover from the pre­vi­ous fis­cal, this year, it plans to pro­vide an­other ₹ 10,000 crore by way of cap­i­tal in­fu­sion.

recorded over the coun­try till Satur­day

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