Marriage Invitation of ‘Bank of Baroda’ with ‘Vijaya Bank’ and ‘Dena Bank’

ABSTRACT

The Cabinet has approved the Merger of Vijaya Bank (VB) and Dena Bank (DB) with Bank of Baroda (BOB). Merger gives more benefits to the acquiring bank particularly to reduce “Fixed and Variable Costs” and to control wastages of the bank to a large extent. But one important factor is to be look into by the acquiring bank in merging process i.e., Strengthen the Organizational Structure i.e., Centralization and Decentralization of various operational areas of the Bank, span of control of various operating units of the Bank.

Mergers and Acquisitions are like Marriages. Lack of willingness to work on it could make the Merger Process and the New Entity a tragic and painful experience of destroyed dreams.

At the beginning it is always with a hope and vision about the combined entity and greater Market Share, Diversification into New Products or Services, Expansion up, gaining Cutting-Edge Expertise for New Product Development and so on.

In general, the following are the advantages of the mergers either in service or in manufacturing organizations:

  • Synergy: The synergy created by the merger of two companies is powerful enough to enhance business performance, financial gains, and overall shareholders value in long term.
  • Cost Efficiency: The merger results in improving the purchasing power of the company which helps in negotiating the bulk orders and leads to cost efficiency. The reduction in staff reduces the salary costs and increases the margins of the company. The increase in production volume causes the per unit production cost resulting in benefits from economies of scale.
  • Competitive Edge: The combined talent and resources of the new company helps to gain and maintain a competitive edge.
  • New Markets: The market reach is improved by the merger due to the diversification or the combination of two businesses. This results in better sales opportunities.

Rationalization’ AND ‘Economies of Scale’ are the TWO biggest Advantages in the proposed merger of VB and DB with BOB, thereby huge Cost Reduction, Increase in Productivity Levels and it strengthens the Balance Sheet of acquiring Bank.

While finalizing the marriage alliance by Ministry of Finance (MOF), Government of India, New Delhi the following financial parameters of both bridegroom and brides were studied and finalized the Muhurat for the Merger.

About Bridegroom (Bank of Baroda):

Bank of Baroda is an Indian State-owned International banking and financial services company headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It’s Headquarters is in Vadodara, it has a Corporate Office in Mumbai.

The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20 July 1908. The bank, along with 13 other major commercial banks of India, was nationalized on 19th July 1969, by the Government of India.

About 1st Bride (Vijaya Bank):

Vijaya Bank, was founded on 23rd October 1931 by late Shri A.B.Shetty and other enterprising farmers in Mangaluru, Karnataka. The objective of the founders was essentially to promote banking habit, thrift and entrepreneurship among the farming community of Dakshina Kannada district in Karnataka State. The bank became a scheduled bank in 1958.

Vijaya Bank steadily grew into a large All India Bank, with nine smaller banks merging with it during the 1963-68. The credit for this merger as well as growth goes to late Shri Mulki Sunder Ram Shetty, the then the Chief Executive of the bank. The bank was nationalized on 15th April 1980. The bank has built in network of 2136 Branches and 2155 ATMs as on 31.03.2018, that span all States and Union Territories in the country.

About 2nd Bride (Dena Bank):

Dena Bank was founded o­n 26th May, 1938 by the family of Devkaran Nanjee under the name of Devkaran Nanjee Banking Company Ltd.

It became a Public Ltd. Company in December 1939 and later the name was changed as Dena Bank Ltd.

In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and it is now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in addition to the business of banking, the Bank can undertake other business as specified in Section 6 of the Banking Regulations Act, 1949.

Assets, Liabilities and other parameters of Bridegroom and Brides (Three Banks) as on 31.03.2018

Particulars Name of the Bank Ranks
BOB VB DB 1 2 3
Number of Employees 55,662 16,079 13,613 BOB VB DB
Number of Branches 5,573 2,136 1,872 BOB VB DB
Deposits (Crs.) 5,91,315 1,57,288 1,06,130 BOB VB DB
Advances (Crs.) 4,27,432 1,18,677 74,239 BOB VB DB
Total Business (Crs.) 10,18,747 2,75,965 1,80,369 BOB VB DB
Net Profit / Loss (Crs.) -2,432 727 -1,923 VB DB BOB
Per Branch Business (Crs.) 182.80 129.20 96.35 BOB VB DB
Per Employee Business (Crs.) 18.30 17.16 13.25 BOB VB DB
CASA Deposits (% in Total Deposits) 41.18 25.04 40.03 BOB DB VB
Non-performing Assets (Crs.) 56,480 7,526 16,361 VB DB BOB
% of NPAs in Total Advances 13.21 6.34 22.04 VB BOB DB
Capital to Risk Assets Ratio – Basel III 12.13% 13.90% 11.90% VB BOB DB
Number of ATMs 9,704 2,155 1,685 BOB VB DB

Analysis:

Among three banks, Vijaya Bank earned profit for the financial year ending 31.03.2018 and the rest of the TWO Banks incurred losses. The percentage of CASA Deposits out of the Total Deposits is highest in Bank of Baroda. Non-performing Assets amount, percentage-wise and Capital Risk Assets Ratio (CRAR) is Good in Vijaya Bank when compared to other TWO Banks. Per Employee / Branch Business is highest in Bank of Baroda followed by Vijaya Bank and Dena Bank.

(Rs. In Crs.)

Particulars Name of the Bank
BOB VB DB
Equity 530 1,304 2,259
Reserves & Surplus 42,864 9,323 6,944
Total Equity 43,394 10,627 9,203
Net Profit / Loss (-)2,432 727 (-)1,923
Deposits 5,91,315 1,57,287 1,06,130
Total Liabilities 7,19,999 1,77,632 1,20,860
Advances 4,27,432 1,16,165 65,582
Total Assets 7,19,999 1,77,632 1,20,860
Interest Income 43,649 12,589 8,932
Non-Interest Income 6,657 1,601 1,164
Total Income 50,306 14,190 10,096
Interest Expenses 28,127 8,287 6,456
Non-Interest Expenses 10,173 2,805 2,468
Total Expenses 38,300 11,092 8,924

Key Financial Parameters: The following ratios denotes the financial health position of the three Banks. This is based on the balance sheets of Bank of Baroda, Vijaya Bank and Dena Bank as on 31.03.2018. On the basis of performance ranks allotted.

  • Return on Equity-ROE (%) = (Net Profit / Capital + Reserves & Surplus) * 100
Name of the Bank 2018 Rank
Bank of Baroda -5.60 2
Vijaya Bank 6.84 1
Dena Bank -20.90 3

ANALYSIS:

Return on Equity or ROE denotes to Bank Stockholders how effectually their money is being utilized or reinvested. It is a useful ratio while analyzing bank profitability or the management effectiveness with the given capital invested by the shareholders. ROE shows how efficiently a bank utilizes its equity for loans and advances, investments to generate income.

Earlier in most of the public and private sectors banks, the Return on Equity (ROE) is in the range of 10% and 20% and these are considered desirable to provide dividends to owners and have adequate funds for future growth of the bank. Investors should be very careful while using ROE as the only efficiency indicator because of ROE can be high if a bank is heavily leveraged.

Vijaya Bank is a profit earned bank for the financial year ending 31.03.2018 and ROE is 6.84%. Whereas Dena Bank and Bank of Baroda ROE is negative and high negative ROE is in Dena Bank.  Low rate of ROE is a barrier to mobilize additional share capital through IPOs, less growth rate in Market Value of the Share and also low market capitalization in stock exchanges etc. After merger, the new entity should focus on these areas to improve the ROE:

  • Mobilize Low Cost Deposits.
  • Control the Controllable Costs / overheads.
  • Rationalization of Branches and Administrative Offices to decrease the overheads and Capital Expenditure.
  • Re-deployment of staff to needy branches from surplus branches to improve the productivity.
  • Control NPAs including probable NPAs to increase bottom-line and to earn good rating in the industry.
  • Focus to increase Non-Interest Income etc. to cover the Non-Interest expenditure.

 

  • Equity Multiplier-EM (Number of Times) = Total Assets / Total Equity^
Name of the Bank 2018 Rank
Bank of Baroda 16.59 2
Vijaya Bank 16.72 3
Dena Bank 13.13 1
  • ^Total Equity = Equity + Reserves and Surplus

ANALYSIS:

The equity multiplier is calculated by dividing a bank’s total assets by its shareholders’ equity. This ratio measures the total assets a bank owns per rupee of its stockholders’ equity. The equity multiplier of a bank should only be used in comparison to the industry standard or with other banks in the banking industry.

For example, suppose ABC Bank has total assets of Rs.10 million and stockholders’ equity of Rs.2 million. Its equity multiplier is 5 (Rs.10 million ÷ Rs.2 million), which means that Bank ABC uses equity to finance 20% of its assets and the remaining 80% is financed by Deposits / Debt.

On the other hand, DEF Bank, which is in the same industry as Bank ABC, has total assets of Rs.20 million and stockholders’ equity of Rs.10 million. Its equity multiplier is 2 (Rs.20 million ÷ Rs.10 million), which means that Bank DEF uses equity to finance 50% of its assets and the remaining half is financed by Deposits / Debt.

Bank ABC has a higher equity multiplier than company DEF, indicating that ABC is using more Deposit / Debt to finance its asset (Loans and Advances). A lower equity multiplier is preferred because it indicates that the bank is taking on less Deposits / Debt to Loans and Advances. In this case, Bank DEF is preferred to Bank ABC because, by not owing as much money, it carries less risk.

The purpose of equity multiplier is to see how much assets of a bank are financed by the total shareholders’ equity, so that we can find out how much assets of the bank are financed by the external sources of finance (Deposits / Debt).

This is one of the financial leverage ratios which helps an investor to find out how much assets are being financed by the shareholders’ equity.

If the ratio is higher, the financial leverage is lower. And if the ratio turns out to be lower, the financial leverage is higher.

There is a marginal gap between BOB and VB. DB equity multiplier is very less when compared to other Banks. Dena Bank uses more capital funds for loans and advances when compared to Bank of Baroda and Vijaya Bank. To improve this ratio the banks, should control the Non-performing Assets to increase in profits. Thereby reserves will be created after declaration of dividends. Effective utilization of equity share capital in addition to utilization of deposits mobilized by the bank improves to pay dividends to the shareholders and also reduces the risk to the bank.  To achieve this ratio, banks should increase the performance in all respects in order to build confidence level among the shareholders.

  • Liability Mix (%) : Total Deposits / Total Liabilities
Name of the Bank 2018 Rank
Bank of Baroda 82.13 3
Vijaya Bank 88.55 1
Dena Bank 87.81 2

ANALYSIS:

Liability Mix Ratio: Among Three Banks, Vijaya Bank Liability Mix is in Top. The difference between liability mix of VB and DB is marginal. This ratio show out of the total liabilities of the banks which the deposits percentage.  If the Ratio is good, it denotes that public is interested to invest their surplus funds with the Bank.

As deposits are source of funds to the bank for doing lending activity, banks should focus to increase this ratio. Poor ratio means that public is not interested to invest their funds with the bank.

Good Customer Service, innovation of deposit product development, digital banking, good publicity, instant services, complaints free / low, increase in rating of the bank like CAMELS rating etc. contributes to increase in Liability Mix percentage of Banks.

Year-on-Year, this ratio should be increased. Branding is also contributed to some extent to increase this ratio. Once public prefers to open the deposit accounts with the bank due to the abovementioned factors, this ratio will increase without much efforts.  If above mentioned factors are positive in banks, Bank’s CASA deposits will also increase. Thereby it is dual benefit to the bank i.e., to increase in Low Cost Deposits and also percentage of Deposits in Total liability of the Bank.

  • Asset Utilization Ratio (%) = Total Income^ / Total Assets
Name of the Bank 2018 Rank
Bank of Baroda 6.99 3
Vijaya Bank 7.99 2
Dena Bank 8.35 1
  • ^Total Income = Interest Income + Non-Interest Income

ANALYSIS:

The asset utilization ratio measures management’s ability to make the best use of its assets to generate revenue or income. Thus, the more effectively a bank utilizes its assets, the more profitable the bank will be.

The asset utilization ratio has been calculated by dividing Total Income by Total Assets.  In Dena Bank the Asset Utilization Ratio is high when compared to the other Banks. Due to price war is going-on in Banking Industry, spreads are thinning Year-on-Year basis.  Banks should focus more on Non-interest income in order to increase the Asset Utilization Ratio and also to increase the bottom-line of the bank.

There is a scope to increase in non-interest income of the banks with its huge network of Branches spread from Metros to Rural Areas of the country through cross-selling of third party products to the existing customers, increase business in remittance products, Foreign Exchange transactions, Hiring of Lockers, Bank Guarantees and Letters of Credit etc. Innovate new financial products to suit requirements of existing and prospective customers to increase business and income levels.

  • ROA (Return on Assets) (%) : (Net Profit / Total Assets) * 100
Name of the Bank 2018 Rank
Bank of Baroda -0.34 2
Vijaya Bank 0.41 1
Dena Bank -1.59 3

ANALYSIS:

Returns on asset ratio is the net income (profits) generated by the bank on its total assets (including fixed assets). The higher the proportion of average earnings assets, the better would be the resulting returns on total assets and to assess the profitability of the bank based on the assets.

ROA of Vijaya Bank is in No: 1 position among three, as Bank of Baroda and Dena Bank the net result is negative (loss) hence these TWO Banks ROA is in negative. But still Vijay Bank ROA is considered as very low and indicates that banks deployment of the funds is not upto the mark.

Factors contribute to increase in ROA of the banks are mobilization of Low Cost Deposits, High Yield Interest Rate on Advances, low NPAs, No income leakages, increase in non-interest income business etc. The minimum percentage ROA in Banking Industry should be 1%.

  • Credit Deposit Ratio (%) : (Credit / Deposits) * 100
Name of the Bank 2018 Rank
Bank of Baroda 72.28 2
Vijaya Bank 73.86 1
Dena Bank 61.79 3

ANALYSIS:

 This ratio indicates how much of the advances lent by banks is done through deposits. It is the proportion of loan-assets created by banks from the deposits received.

The higher the ratio, the higher the loan-assets created from deposits and also it increases the profits / bottom-line of the bank through positive spreads. Deposits would be in the form of current and saving account as well as term deposits.

The outcome of this ratio reflects the ability of the bank to make optimal use of the available resources. Ratio of Vijaya Bank is high when compared to the other TWO banks.

Banks have to tap the lending opportunity available in the market which gives more margins to the bank in future. To increase this ratio, Banks are to be introduced more Innovative digital products both in deposit and advance segments.

  • Net Interest Margin (NIM) (%) : (Net Interest Income ^ / Total Assets) * 100
Name of the Bank 2018 Rank
Bank of Baroda 2.16 2
Vijaya Bank 2.42 1
Dena Bank 2.05 3

^Net Interest Income = Interest Income – Interest Expenses

ANALYSIS:

The difference between interest income and interest expense is known as net interest income. It is the income, which the bank earns from its core business of lending. As such, NIM is the net interest income earned by the bank on its assets. These assets comprises of advances, investments, balance with the RBI and Money-at-Call Notice etc. Hence it is calculated as,

NIM = (Interest income – Interest expenses) / Total Assets

The difference between the revenue generated by interest bearing assets and cost of borrowed fund gives the Net Interest Income (NII) of the bank.  The NII when expressed as a percentage of the assets gives the NIM of the bank.

NIM of Vijaya Bank is more and Bank of Baroda and Dena Banks is less. To increase in the NIM Ratio, Bank should give more focus on CASA deposits, where the cost of deposits is low when compared to Time Deposits.  The other strategy to increase in Net Interest Margin is to sanction High Yield Interes Rates Advances.

Once the loan account turns into NPA, accrued Interest on NPAs should not be taken as Interest Income.  Hence, banks should minimize the Non-performing Assets and it should be within 3% of Total Advances. If NPAs are on increasing trend, “Recycling of Funds” will stop, thereby it decreases the Interest Income to the Bank.

  • Interest Expenses Ratio = (Interest Expenses / Total Income^) * 100
Name of the Bank 2018 Rank
Bank of Baroda 55.91 1
Vijaya Bank 58.40 2
Dena Bank 63.95 3
  • ^Total Income = Interest Income + Non-Interest Income

ANALYSIS:

Interest Expenses Ratio: Net Profit in turn is influenced by the interest and non-interest income and expenses of the bank.  Interest expenses ratio shows interest expenses to total income. Interest expenses means interest paid on deposits and funds borrowed by the banks through various sources.

Interest expenses is to be minimized drastically by developing new deposit products, focus more CASA Deposits.  On the other side the banks are to give more focus on increasing interest income i.e., on advances.  If performing assets are more, then performing assets will generates interest to the bank.  Slippages of Standard Assets to NPA should be arrested through better NPA Management strategies.

Increase in Non-Interest Income is also important to banks due to decrease or thinning in interest spreads on account of price war in the market.  Sources of non-interest income to the banks is Commission and Exchange income.

Commission earns by the banks by offering various services to their existing customers and non-customers.  Banks are getting Exchange income by selling remittance products and foreign exchange business. The percentage of interest expenditure of Dena Bank is more out of the income generated by the bank.  Among three, Bank of Baroda is incurred 55.91% as Interest Expenses out of Total income earned by the bank.

  • Efficiency Ratio (%) : (Non-Interest Expenses / Net Total Income ^) * 100
Name of the Bank 2018 Rank
Bank of Baroda 45.88 1
Vijaya Bank 47.52 2
Dena Bank 67.80 3
  • ^Net Total Income = Net Interest Income (Interest Income – Interest Expense) + Other Income

ANALYSIS:

This ratio really helps to understand how banks earn income and from what sectors they earn from. The ratio also helps to breakout the expenses that a bank can have and the impact they can have on the bottom line.

The Efficiency Ratio is calculated by dividing the bank’s Non-interest Expenses by their Net Income. Banks strive for lower Efficiency Ratios since a lower Efficiency Ratio indicates that the bank is earning more than it is spending. A general rule of thumb is that 50 percent is the maximum optimal Efficiency Ratio,

A bank’s efficiency ratio is essentially equivalent to a regular bank’s operating margin, in that it measures how much the bank pays on operating expenses, like marketing and salaries. By and large, lower is better.

The efficiency ratio is a quick and easy measure of a bank’s ability to turn resources into revenue. The lower the ratio, the better (50% is generally regarded as the maximum optimal ratio). An increase in the efficiency ratio indicates either increasing costs or decreasing revenues.

It is important to note that different business models can generate different efficiency ratios for banks with similar revenues. For instance, a heavy emphasis on customer service might lower a bank’s efficiency ratio but improve its net profit. Banks those focus more on cost control will naturally have a higher efficiency ratio, but they may also have lower profit margins.

In addition, the more a bank generates in fees, the more it may concentrate on activities that carry high fixed costs (and thus create worse efficiency ratios). The degree to which a bank is able to leverage its fixed costs also affects its efficiency ratio; that is, the more scalable a bank is, the more efficient it can become. For these reasons, comparison of efficiency ratios is generally most meaningful among banks within the same model, and the definition of a “high” or “low” ratio should be made within this context.

In Dena Bank efficiency ratio is high and it is low in Bank of Baroda.  The two ways the banks should focus to fulfil this issue i.e., to control the non-interest expenses or to increase spread and other income.  Due to increase in alternate delivery channels, there is a possibility to the bank to decrease further in non-interest expenses as alternative delivery channels per transaction cost is low when compared to the branch channel.

  • Burden Ratio (%) = (Non-Interest Income / Non-Interest Expenses) * 100
Name of the Bank 2018 Rank
Bank of Baroda 65.44 1
Vijaya Bank 57.08 2
Dena Bank 47.16 3

ANALYSIS:

The Burden Ratio is the measure of the difference between Non-Interest Income and Non-Interest Expenses. Breaking it down, the Burden Ratio measures how the Net Asset Yield (Net Interest Income / Total Assets) will be burdened by the net expenses of the Bank. How much of Net Interest Margin must you give up to run the Bank?

While many Banks have the benefit of constrained infrastructure and costs, most will not be able to “cut their way to greatness” to improve this ratio. The options to lever impact upon the Burden Ratio most often will lead to the need for expanded Non-Interest Income.

In the current and evolving regulatory environment, fee income sources from deposit and loan accounts have become restrained and they will seemingly continue to decline as consumerist policies, competition in the market etc. The answer to improve the Burden Ratio lies in the need to expand fee income sources on existing and new products and services.

If non-interest income to non-interest expenses are matched or equal, the positive spread of the bank i.e., net interest margin or (yield on advances minus cost of deposit) is a profit to the bank after providing provisions on NPAs etc.  This is low in Dena Bank when compared to Bank of Baroda and Vijaya Bank. To match the non-interest income and non-interest expenses, banks should make efforts or to focus either to increase the non-interest income (Commission and Exchange Business) or to decrease non-interest expenses (Controllable costs like overheads). This strategy to be followed from Branch to Region and bank as a whole.

Advantages of Bank Mergers to various stakeholders:

  • Rationalization of Branches – It reduces overheads and also capital expenditure.
  • Rationalization of Regional & Zonal offices / Business Networks – It reduces overheads.
  • Manpower Adjustments with existing manpower (By deploying surplus to needy branches).
  • Minimization in Recruitment Costs (By following productivity norms).
  • Minimization of overall Overheads (Focus on Controllable Costs).
  • Control of wastages in Advertisement Costs.
  • Benefits through Large Scale Economies.
  • Better NPA Management (By initiation of SARFAESI, DRT, IBC, 2016 etc.)
  • Better Asset Liabilities Management (ALM).
  • Better Treasury Management (By minimizing borrowing costs and Non-performing Investments).
  • Better Implementation of Basel III (Through reduction of Credit, Market and Operational Risks).
  • Technology up-gradation with less Capital Expenditure through Cloud Computing.
  • Optimum utilization of existing Alternate Delivery Channels (Identify strategic locations to shift ATMs, CDMs etc).
  • Avoid Duplicate / Double of Finance (Through Data Warehousing).
  • Better implementation of Risk Focused Internal Audit (RFIA).
  • Better Control by Regulator and Government of India.
  • Better implementation of Corporate Governance (Increase efficiency by following ethics).
  • Increase in Productivity Ratios of the Bank (Through Inter or Intra Firm Comparisons).

Conclusion:

 

Merger gives more benefits to the acquiring bank particularly to reduce “Fixed and Variable Costs” and to control wastages of the bank to a large extent.  In public sector Banks, ‘Expenses Share’ and ‘Manpower Cost’ in Total Income (NIM + Other Income) are in the range of 15% to 23% each. Hence, these costs will reduce drastically through merger process. In addition to this, acquiring bank can use Information Technology in a big way i.e., optimum utilization of existing Alternate Delivery Channels like ATMs, Mobile Banking, CDMs, POS Machines, Internet Banking, Business Correspondents / Customer Service Points and Call Centres etc. thereby it not only reduces per transaction cost of the bank but also to increase the bottom line. This can be possible through mergers. The end result is the acquiring Bank may charge “Low Rate of Interest” on Advance Products (MCLR).  Lower Rate of Interest on advances boosts the economic growth of the country further and also it increases the Business Levels, market share and bottom-line of the acquiring Bank.

 

(Synopsis of Financial Health Ratios of THREE Banks)

 

Ratios Ranks
BOB VB DB
Return on Equity-ROE (%) 2 1 3
Equity Multiplier-EM (Number of Times) 2 3 1
Liability Mix-LM (%) 3 1 2
Asset Utilization Ratio-AUR (%) 3 2 1
Return on Assets-ROA (%) 2 1 3
Credit Deposit Ratio-CDR (%) 2 1 3
Net Interest Margin-NIM (%) 2 1 3
Interest Expenses Ratio-IER (%) 1 2 3
Efficiency Ratio-ER (%) 1 2 3
Burden Ratio-BR (%) 1 2 3

But one important factor is to be look into by the acquiring bank in merging process i.e., Strengthen the Organizational Structure i.e., Centralization and Decentralization of various operational areas of the Bank, span of control of various operating units of the Bank. Undoubtedly merger gives number of advantages to the acquiring bank, at the same time Controlling is very difficult due to increase in size of the Organization, Business Operations and Volumes of transactions etc.  To overcome this problem, from the day one of merging processes, the acquiring bank should give more focus on Control Function aspects for each and every business processes / functions i.e., how effectively and efficiently control the Bank Branches located in nook and corner of the country.  Other-wise, the objective of merger will be defeated, if control systems are not well established / placed by the acquiring bank.   Due to availability of advanced Information Technology Systems in the country, controlling Branches located faraway from the Head Office is not a big problem to acquiring Bank. To mitigate THREE important Risks of the Banks i.e., Credit Risk, Market Risk and Operational Risk, the acquiring bank should strengthen the Risk Management Department, Risk Focused Internal Audit, System & Procedures etc. then fulfil the objective of merger and the required Capital Adequacy Ratio (CAR / CRAR) is not a problem to acquiring bank.


References:

Annual Reports of Public Sectors Banks.

About the author

CMA (Dr.) P. Siva Rama Prasad, Retired Asst. General Manager, State Bank of India, Hyderabad. He is Fellow Member of Institute of Cost Accountants of India, Institute of Company Secretaries of India, Insurance Institute of India and Indian Institute of Banking and Finance.

Published :

Banking Finance – March 2019