Positive Side of Vijaya Bank and Dena Bank with Band of Baroda and Roles of Personal Relation in Banks Merger

From 1st April, 2019, The public sector Bank of Baroda (BoB) has made things even bigger. The merger of Vijaya Bank and Dena Bank with Bank of Baroda, BoB has been transformed to become the second largest public sector lender after state bank of India and the third largest overall after SBI and HDFC Bank. So far Punjab National Bank has been the second largest bank in the public sector.

The new company now has a network of around 9,500 branches throughout India, and about 13,000 ATMs. Vijaya Bank and Dena Bank customers have now obtained access to some 104 Bank of Baroda branches in overseas.

According to the Amalgamation Scheme, Vijaya Bank shareholders will receive 402 BoB equity shares for every 1,000 shares held. In Dena Bank 's case its shareholders will receive 110 BoB shares per 1,000 shares.

The combined company would have more financial strength, the net NPA ratio would be 5.71 per cent, slightly higher than the 12.13 per cent rate for PSBs.

Announcing the merger, Finance Minister Arun Jaitley had said "The consolidation will help create a strong globally competitive bank with economies of scale and enable realisation of wide-ranging synergies".

The 120+ million customers will experience superior banking services and benefit from wider product range including cash management solution, supply chain financing, financial planning, wealth management.

Advantage of Banks Merger

1.   Synergies

A synergy arises in a merger or acquisition when the combined value of the two firms is higher than the pre-merger value of both firms combined. For example, if firm A has a value of $500M, firm B has a value of $75M, and the merged firm has a value of $625M, there is a $50M synergy for this merger. The newly-merged entity is expected to become globally competitive with the synergies of the three banks.

 

2.   Low-cost Deposits

Bank of Baroda has a lower lending rate which will now benefit the other two entities as well and boost their portfolios. It will also have a wider customer base and reach, and with the help of the advantages of the merger, be able to provide a wider set of offerings to customers.

 

3.   Entry into Untapped Market (Micro Markets)

The networks of Dena Bank and Vijaya will also help BoB penetrate deeper into the micro markets and increase its coverage of the rural and remote areas. With products designed for these markets BoB could have a better grip in these markets as compared to before.

 

4.   Economics of scales

For the bank, retaining and enhancing its identity as a larger bank becomes easier. After the merger, benefits of merger are enormous and the biggest is generation of a brand new customer base, empowering of business, increased hold in the market share, opportunity of technology upgrade. Thus overall it proves to be beneficial to the overall Economy

 

5.   Business Gaps Filled

Bank mergers and acquisitions empower your business to fill product or technology gaps. Acquiring a smaller bank that offers a unique revenue model or financial product is sometimes easier than building that business unit from scratch. And, from a technology perspective, being acquired by a larger bank might allow your institution to upgrade its technology platform significantly.

 

6.   Talent And Team Upgrade

While not a factor on the balance sheet, every bank benefits from a merger or acquisition because of the increase in talent at leadership’s disposal. An acquisition presents the possibility of bolstering your sales team or strengthening your team of top managers, and this human element should not be ignored or downplayed.

 

7.   Improve risk management

Banking mergers, increasing risk diversification, should in principle result in banking firms that are better diversified and hence less likely to fail. In turn, this should create a healthier banking system that is less prone to banking crises.

 

                        

Personal Relation role in Bank merger

1) The schedule and unique way of the delivery of information matters. (By PR to stakeholders)

One of the biggest mistakes a company can make is allowing the story to leak to the news without first informing its board, employees or customers. It’s highly unlikely that your board of directors would be in the dark during the process of a merger. 

PR should, communication team can carefully craft a rollout plan that outlines timing and messages for each of your audiences. These multifaceted messages will quell worries, answer key questions and reinforce benefits. Well-planned PR is like magic, especially during a time when you need news to go over well. When these plans are executed according to the strategies laid out in the plan, the results can start your next chapter on the right foot.

2)  Customer Mergers and each group have unique concerns. (Loyal Customer)

One of your loyal customers is here to remind you that I’ve invested time, energy and resources into your business! As such, I deserve to know about your merger and acquisition before (even if just moments before) the general public does.  it’s essential that the PR team communicate with its customers early and often throughout the merger process. PR team can craft a stellar PR plan that spans the entirety of your merger period (and even a year ) that includes initial outreach and Q&As.

3) Mergers and Acquisitions will be terrifying for front line and bottom line.

No merger goes perfectly, and there are inevitably going to be hiccups throughout the process. When you include your PR team on the front end of a merger or acquisition, they’ll plan for these hiccups, and all of the other hiccups you’re not expecting. PR practitioners will help you prepare for all of the crises you’ll face, the ones you won’t see coming, and the ones you didn’t think you’d need to plan.

4)   Integration issue

PR also deals effectively with the integration issue. Effective employee communication acts as a key here. Questions about job security, relocation, changes in benefit programs and new reporting relationships are answered by the PR only. Keeping a check on rumors, anxiety, resentment and the loss of top talent, has also to be dealt with.

5) Building Faith in Employees

The M&A phase is very sensitive to employees as they feel insecure about their future in the transitional times. HR in such a situation makes people retain their faith in the organization. The HR has to retain the confidence of employees and assure them job security.

6)  Technology platforms

Bank merger announcements have been done keeping in mind the same technology platforms, there exists issues in integrating various versions of the platforms.

For example, in the case of Bank of Baroda, IT integration is still in process despite the fact that Dena and Vijaya were on Infosys’ Finacle platform but on different versions that is the later two being on version 7 as against former being on version 7 as against former being on version 10. UBI and OBC use Finance 7 while PNB uses Financle10. So, UBI and OBC would need to upgrade their software solutions to have a seamless integration.

7)  Train to staff workers

Bank depending on the reporting and MIS requirement had got certain level of customisation done. To synchronise these systems will take an approximate time span of 12 to 18 months and an area of concern would be to train the staff to work on the higher versions as well as generate the MIS and reports as per the anchor bank’s requirement.  As per current reports, Bank of Baroda has taken nearly seven months to integrate 30,000 employees of Dena and Vijaya Bank with itself, taking the total headcount to 85,000.

8)  Job Positioning (which banker should get higher position)

The bank in order to absorb the talent at various levels has brought the new setup under its existing four-tier structure, has created more zonal and regional bases and has put in place a plan for the leadership and resources in higher positions to be aligned to new structure and therefore created new job positions. The bank also employed a survey and feedback systems, wherein few thousand employees gave their opinion on the progress of integration, which formed the basis for corrective measures, if any.