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This article is more than 2 year old.

Dena Bank allays investor fears, says due process followed in fixing merger ratio

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Dena Bank allays investor fears, says due process followed in fixing merger ratio.

Dena Bank allays investor fears, says due process followed in fixing merger ratio
Karnam Sekar, managing director and chief executive officer, Dena Bank has more than three decades of experience in banking sector. He began his career with State Bank of India (SBI) on December 9, 1983. In his tenure with SBI, he donned the role of branch manager of the corporate accounts group branch (Mumbai), manager (treasury) at SBI Johannesburg, South Africa and chief general manager in Lucknow circle. Allaying investors’ fears, Sekar said the merger ratio was done after a long due process, which is accepted in the merger amalgamation market.
Yesterday, the union cabinet approved amalgamation of Dena Bank and Vijaya Bank with Bank of Baroda (BoB), a move that would create the country's third largest lender. Merged entity will not to have any staffing issues, tells Sekar to CNBC-TV18.
Edited excerpts:
Q: Are you disappointed by the merger ratio?
A: You cannot be comparing with yesterday’s stock price. So this merger ratio was done after a long due process, which is accepted in the merger amalgamation market. After the announcement of this by government on September 17, independently, all three banks have appointed valuers and over and above the valuers, we have appointed a fairness opinion provider also. Those people have done their work individually, collectively, and they have sat and discussed among themselves also and then they have arrived at the value. They have gone through three methods, net asset value method, market value method and the comparative company method and they have given appropriate weightage to all these three methods and finally they have arrived at value and the ratio. Then, yesterday all three banks sat and after a long discussion, we have agreed and approved this. So, everybody is happy, because it was a very well thought and accepted process and it was done almost one month of analysis of past and future.
Q: Any indication at all what will your role be in the merged entity?
A: One thing is clear that merged entity will have a structure of managing director (MD), executive director (ED) and whatever is available in public sector bank. So only one MD will be there. That much is clear and who will be there and who will not be there – government will take a call very soon.
Q: Have you all already started the human resource (HR) process of telling your employees down the line what their designations will be, you don’t expect any problems or heartbreaks?
A: No, we don’t expect – heartbreaks definitely will not be there as the moment they have made this announcement, the government of India and the finance minister himself was making it very clear that there will not be any problem for any of the staff members. He was actually quoting the earlier merger of SBI and its associates and I am from SBI. So I know what happened there.
There will not be any issue with respect of staff as we have started the process almost two months ago in HR, IT and other departments also. For all systems, procedures and credit related areas, we have formed committees with representatives from all three banks and they are working on it. We have started harmonising the policies also.
We have aligned with BoB and Vijaya Bank on some policies and we got them approved by the board also. We have almost completed most of the processes and most of the policies. In HR, I don’t see any issue. But IT, it will be a major issue. We need to focus on that.
We are focusing on that and fortunately for all three banks, service provider is Infosys. So there also we don’t foresee much of a problem, but we need to be aware of that because customer satisfaction will depend a lot on that. So IT integration, we have already started and within one-two months, we will be out with the solution.
From April 1, 2019 onwards as far as customer is concerned, all 9,000 branches of all three banks put together, it will be one bank. In the background, integration and all other processes and procedures and IT, it will keep on happening.
Q: What is your best guess of synergies that can be achieved? Do you think the general cost to income ratio of the amalgamated entity will fall in FY20 itself?
A: I will not be able to tell the level of improvement in FY20. But FY20-FY21, definitely all the synergistic effects will start flowing in. In December quarter, we are showing a very significant reduction in non-performing assets (NPA) and if the same trend continues, in March 2019, our bad loans reduction would be significant. So with that, overall NPA position of the combined entity as March 31, 2019 itself would come down and that will only further improve for March 31, 2020. However, this consolidation, we may take two-three quarters to stabilise and once we stabilise, then all the synergistic effects would be flowing in.
One important point that we will bring to the table is cost of funds. We have very high level of current account/savings account (CASA) in Dena Bank, so that will come to the table and then cost of funds would come down.
Q: Our reporter broke this story that when the renewed recap bonds were announced, further Rs 43,000 crore, that the amalgamated entity will also be given more capital. Are you privy to anything in terms of an amount or timing when the capital will be given to you?
A: Amalgamated entity – I am not very clear. But as an individual bank, Dena Bank in the beginning of the financial year FY18-FY19, we made a request of around Rs 2,000 crore to the government and they approved it. The said fund will be coming by March 2019. Apart from that, this is for both regulatory capital and partly maybe for growth capital, but Vijaya Bank and BoB whether they made any request, I am not fully aware. So, overall amalgamated body – how much we will be getting for this FY18-FY19, I am not very clear. But Dena Bank's March 31, 2019 balance sheets are going to be different. So for that balance sheet, Dena Bank will get around Rs 2,000 crore definitely from government.
Q: The MSME forbearance announced by the Reserve Bank of India (RBI), how does Dena benefit? What is your total exposure to MSME loans under Rs 25 crore? How many of them are in special mention account (SMA)-I or SMA-II?
A: SMA I or II are unfortunately not many as all classifications we have done – either it's standard or totally NPAs. So there is no in between much. So that way, we may not gain much benefit. But actual NPA position of Dena Bank would show significant improvement both in December 2018 and March 2019.
Q: Will you be back to loan growth at all?
A: Talking on loan growth, Dena Bank is under severe prompt corrective action (PCA), so we cannot grow at all. We have de-grown and from March 2017, our books have contracted loans of almost Rs 15,000 crore. So, we are not growing.
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