The case of the Universal Bank : Business Today Case Game
[Should IDI reverse merge with its banking arm to expand its services? Ashvin Parekh, Partner (Business consulting), Arthur Anderson, U R Bhatt, Director & CIO and Anurag Khanna MD & CEO, Banknet India debates Case Game of Business Today]
Following are the comments of our CEO, Anurag Khanna in the debate
To go or not to go the way of universal banking is not a choice before IDI anymore. This is particularly true in the current scenario, where the economy is slowing down and sources of subsidised long term funds drying up leading to asset - liability mismatch, escalation in NPAs and lower margins. The market has already made the decision for IDI.
Once the objective has been finalised, it is important for IDI to have a game plan. The road map must ensure that IDI not only reaches its objective with minimal disruption to its existing frame work, work flow and employee morale but also do so in full compliance of the regulatory requirements of RBI.
IDI can examine the possibility of adopting a hybrid structure. This is somewhat along the lines of the structures of non-banking financial companies (NBFCs), and can be an interim measure until IDI can meet the central Bank's norms completely. In this mode, IDI could do some of the businesses a commercial bank would do without getting into full-fledged banking. It will be less than a bank and more than a FI. The advantage of this structure is that FDI will get some breathing space for complying with the CRR/SLR & other norms.
Considering the synergy in terms of customer base, market segments and the business profile of IDI and IDI bank reverse merger is a cost and time effective route to achieve the objective. There are, however, a few issues that Fernandes should deal with upfront.
The foremost is to create an atmosphere of trust and confidence amongst its employees. Once that is achieved half the battle is won. Other things will automatically fall in place. Operational issues relating to statutory requirements, investment in equity, loans to directors, priority sector lending will have to be addressed in due course. But a clear strategy is a must for the tasks ahead. And employee buy-in is crucial.
In fact, most issues that will surface in the implementation phase are certain to be related to HR. Typical of any merger scenario, these pertain to redefining job roles, identifying skill sets, retaining core talent, retrenching dead wood, relocation and supersession. It may be a good idea to have some clarity on the underlying such decisions right at the beginning so that there are no surprises in store for any one. It is important to ensure transparency in all HR processes. That is the one sure way of sustaining employee morale. Apart from this, other issues that will come up would include striking a balance between retail & wholesale banking activities, supplementing each other's markets by leveraging existing strengths and of course customer relationship management.
When you move from class banking to mass banking, technology is the single largest facilitator, particularly in terms of product standardization and back office processing. Technology and the integration of it, thus, is another issue that Fernandes must address upfront.