Bank of Baroda (BoB) is going to do the best to ensure no disruption in the amalgamation process and expects Dena Bank or Vijaya Bank will stay focused with the respect to their businesses, said PS Jayakumar, MD and CEO, Bank of Baroda.
"We will do our best to make sure there is no disruption," said Jayakumar.
The government on Monday announced that public sector banks - Dena Bank, Vijaya Bank and Bank of Baroda - will be merged into a single entity, making it India's third largest bank. The merged entity will have total assets of more than Rs 14 lakh crore.
Watch: Reasonable to assume that Bank of Baroda would head the merged entity, says Bob CEO Jayakumar
"The next step would be to schedule board meetings of the three banks and take a view of the request made by the government. Assuming that goes forward, the next step would be to go forward with the process of appointments of investment bankers, valuations etc," said Jayakumar told CNBC-TV18.
Edited Excerpts: When did you get to know of the merger?
We have been part of the discussions at different points in time with respect to the potential choices and how we should go about it. Beyond a point, it is difficult to share my conversations with the government.
What is the next step, can you give some idea of the timetable by when you will have a merged entity?
The next step would be to schedule board meetings of the three banks and take a view of the request made by the government. Assuming that goes forward, the next step would be to go forward with the process of appointments of investment bankers, valuations etc.
Arising from that would be stock swap ratio, which we need to agree upon. Those stock swap ratio then needs to be approved by the respective bank boards. Then a scheme of consolidation is drawn up and that has to be presented before both houses of parliament for 30 days and then the process relating to the final leg relating to the legal process, relating to consolidation will get completed.
So clearly there is no scope of going down the open offer route?
No, there is no open offer, it will be a stock swap.
Has any decision been taken on the Record Date?
Not really, first let the boards meet then we will take a call on Record Date.
These become relevant for investor audience because Record Date of today and that of yesterday is a vast difference. So, I assume that is kept in mind?
I will get back to you quickly on that.
Who heads the merged entity? Have they invited you to do that?
That will be decided later on. It is reasonable to assume that the person who would lead Bank of Baroda would be in charge of the merged entity but all the things are yet open for discussion.
I have communicated to the government that in so far as I am required to continue that is available.
So, as far as your continuity is concerned, you are available?
That would be the correct position.
Now tell us, what do you see as the major integration problems? What will fill your time from now to the next 12 months?
I am putting this in a couple of ways. One is the stock corrections, particularly of BoB stock, and the concern that usually comes up is that there would be a distraction of energy at this point in time from the activities we are involved in and the growth path we are showing.
Second, availability of capital in the time of need, otherwise BoB would have gone to the market to raise funds. Now with the merger, we may do it at a different time. The third issue is more long-term on whether potentials of synergies can actually be realised.
As far as business is concerned, we will do our best to make sure there is no disruption. There is a theoretical construct on how integrations are conducted, there will be a special team that will be working and we are expecting rest of the organisations whether it is BoB or Dena Bank or Vijaya Bank will stay focused with the respect to their businesses.
As far as capital is concerned, the finance ministry on Monday said that adequate capital will be provided for growth.
Has the government promised you more capital?
If you saw the presentation it is very clear that that capital will be provided. The third aspect is the synergies and integration, which is a bit long-term process and we have to be thoughtful of what we do.
There are many reasons to believe that this should turn out favourable. So if you are to look at it broadly, the combined organisation is geographically much better represented in the markets we like to be present. For example, in Maharashtra, BoB has 505 branches, a combined entity will have 1,009 branches.
If you take Karnataka, BoB has 121 branches the combined would have 796 branches and in Gujarat we have 1,007 branches and the combined entity will be 1,744 branches.
In the states of Andhra Pradesh, Karnataka, Tamil Nadu, Telangana and Kerala, where BoB is relatively under-represented, the current merger would help the combined entity to have a much more distributed branch structure.
So that would be a case of complementarity. So the synergies have to be realised there are some obvious benefits that are there and that is something that is medium-term.
About the capital point, any indication?
The board would meet and there would be a response to it and around that time I would think we should be able to think through whether capital is required. But let us look at the numbers as they are leaving aside the question if the capital will be available.
BoB on a standalone basis has CET-1 of 9.27 percent as of June 30, 2018, if this combined entity was in existence as of June 30, the CET-1 ratio, for example, would be 9.33 percent.
If we are to look at, for example, the coverage ratio for what we call at PCR without taking the PWO, BoB on a standalone basis is 59.94 percent and combined entity would 57.14 percent. So if we were to look at the total capital, which is Tier I, Tier II, CET-1 etc., BoB as on June 30, is 12.13 percent and the combined entity would be 12.26 percent.
So there is enough headroom for the time being to continue to keep growing assuming the gross profits and margins and other things kick in. I think there is a certain amount of freedom of action with respect to existing capital, over and above what we needed.
Assuming this merger is not going to take place, BoB would be approaching capital market probably in the third or fourth quarter, not because it is necessary, but we think that would be an appropriate time to do it. So, there is no immediate urgency that capital should be infused, that is adequate. We are in fairly good positions and we will continue to grow.
You said the coverage ratio will fall from 59.94 to 57.14 percent right?
Any other dilutions of operating ratios – what happens to the Current Account, Savings Account (CASA) post the merger?
The numbers are as follows - on a standalone basis BoB is around 40.82 or 41 percent, the combined number would be around 38 percent. This, one or two percentage movement happen even in a normal course. But it is more sensible to talk about aggregate numbers rather than percentage so that you rundown some deposit and improve some ratio.
Will there be any uncertainty relating to recognition of NPAs going ahead? The NPA coverage of Vijaya and Dena Bank is much lower than BoB, so when the merger takes place, how would its recognition take place?
One of the things we have to keep in mind is if you look at Vijaya Bank’s coverage ratio, it tends to be far more retail in character. If you are looking at a larger number of mortgages and those kinds of stuff, you are not running into the binary situation as you would sometimes run with corporate loan portfolio. So that explains why the ratio although lower might be sustainable. I don’t have the data but I am making an observation badly that if retail, very granular in character, we can work with less coverage ratio.
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