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M&A in Indian Banking System– An Executive Handbook
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Round table discussion on the UTI-GTB Merger
[Following is excerpt from round table discussion organised by Chartered Financial Analyst & published in their March 2001 issue. Participants were Anurag Khanna (AK), CEO, Banknet India , Prof TT Ram Mohan, IIM Ahmedabad & Debjyothi Ghosh Roy ,Director, BDP Consultants]
On the driving factors for the merger
AK: The driving force for this merger is to set up a robust bank with a high capital base. In brief, the underlying driving factors are to cope with pressures in the form of increasing capital adequacy requirements, tightening prudential norms, and the increasing demands on resources to be committed for technology and infrastructure. For UTI Bank, there was the additional regulatory pressure to bring down its promoters' stake to below 40 percent in keeping with licensing conditions.
On the merged bank
AK: The new entity will effectively combine the strengths and complementary features of the two banks. It will be strongly capitalised with a networth that will be in excess of Rs 1,000 crore by end-March 2001.
On synergies
AK: The two banks have lot of similarities. They are roughly of the same size, age and have retail presence. Both have a strong technology base with similar technology platforms. Both banks also have the advantages of new private sector banks:- lean staff, automated and non-unionised work environment and connectivity.
Although there could be an overlap of branches because of the merger, there are also some complimentary strengths. Global Trust Bank, has a fairly strong clearing bank business and UTI Bank, is strong in cash management products. UTI Bank, with support of UTI has strong Corporate Base, while GTB is one of the strong retail Bank.
On product portfolio
AK: Consumers will be the beneficiaries from this merger. The merged entity is expected to have a focus on retail. With good technology and backing of UTI, retail customers will benefit in terms of more ATMs, deposits, and loan products.
On UTI Bank's public sector image and integration
AK: Both UTI Bank and GTB basically are manned by bankers from PSU and old Private sector Banks and their work culture at the senior management level is quite similar. Unlike the ICICI and Madura merger, integration of UTI and global will be comparably much smoother.
On the impact on Human Resources
AK: Like in any consolidation between two entities, employee retrenchment is going to happen sooner or later. In this case as a new entity is being formed, employees from both banks, who do not fit in the scheme of things will face prospects of retrenchment.
On consolidation in the banking sector
AK: Recent spate of bank mergers has led to the M&A scene in the Indian banking industry warming up. Mergers and acquisition route is providing a quick step to acquire competitive size and offering banks an opportunity to share markets and reduce cost of product development and delivery.
Consolidation in the banking sector is inevitable Mergers of smaller, newer banks would be much easier than the PSU banks, due to legal and social constraints. India is now moving in the direction of fewer but larger mega banks.
While merging banks should keep in mind the inherent strengths and weaknesses of a taken over bank. Fundamental features like Portfolio, NPA levels, capital adequacy, technology levels, staff issues should be closely considered when planning for a merger.
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