Banks Fear Brand Loss Post Merger
As more small public sector lenders face consolidation, they urge finance ministry to ensure that their names survive
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.
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