Mumbai: Mumbai-based Union Bank of India and Bank of India (BoI) are quietly taking steps to merge to create India’s third-largest commercial bank after the State Bank of India and ICICI Bank Ltd.
The combination would create a bank with a market capitalization of Rs13,753 crore. BoI shares closed at Rs173.50 on the Bombay Stock Exchange on Friday. At this price, its market capitalization is Rs8,469 crore. Union Bank shares closed on Friday at Rs104.60. Its market capitalization is Rs5,284 crore.
The two banks came close to an understanding on their merger in 2004 and it would have happened by April 2005 but for the stiff resistance put up by the Left parties even when both banks didn’t envision job cuts.
This time around, while many of the same hurdles remain, the two banks are putting in place the building blocks without talking about it.
They have already begun the groundwork by reaching a broad business understanding on four key areas—loan syndication; collection of cheques, drafts and other instruments; training of personnel; and international businesses.
Under the arrangement, put in place last year, both the banks are participating in big-ticket loan syndication and 2,000 of their branches are collecting and clearing cheques and drafts of customers of both banks. In other words, these 2,000 branches, or about 42% of the 4,800 branches owned by the two banks, have been working as common branches where any customer can walk in for some of the same banking services. A Union Bank customer can use a BoI branch in a location where his bank is not present and vice versa. The training institutes of both the banks are also working closely to train about 69,000 employees of them.
Finally, Union Bank plans to get internal exposure for its senior executives through 25 international branches of BoI where they can work on deputation. BoI has branches and representative offices across four continents with presence in all major financial centres, including London, New York, and Tokyo. Union Bank does not have any international presence.
Incidentally, three other public sector banks—Indian Bank, Corporation Bank and Oriental Bank of Commerce —last year forged a business alliance to share businesses and customers, but banking sources say the arrangement between Union Bank and BoI is working on a different plane. “Given their background, these two banks are working closely to understand each other and make their employees feel comfortable in the run-up to a possible merger,” said a person familiar with the thinking at both banks but didn’t want to be named.
People close to the banks suggest the pace will gather momentum once BoI gets a new chairman next month.
T.S. Narayansami, chairman of Indian Overseas Bank, is set to take over as BoI chairman in May after the current incumbent M. Balachandran hangs up his boots. Incidentally, Narayansami is an old Union Bank hand. His deputy, K.R. Kamath, is from Corporation Bank.
The existing chairman of Union Bank, M.V. Nair, is also a former Corporation Bank general manager and his deputy R.S. Reddy a former Bank of India general manager.
“These things help… they can move things faster,” says a banking consultant who didn’t want his name disclosed.
In 2004, when the two banks almost sealed the merger deal, the chairman of Union Bank was V. Leeladhar, now a deputy governor at the Reserve Bank of India, which is also the country’s banking regulator. And, back then, a former Union Bank executive director, M. Venugopalan, was chairman of BoI. Nair declined to comment on the plans and Balachandran couldn’t be contacted.
A finance ministry official said if both the banks decide to merge, the government would not come in their way. “This is the stated stance of the ministry,” he said.
Going by the country’s banking law, the Union cabinet’s approval is required for a merger between two public sector banks.
A trade union official, who didn’t want to be identified, said the proposed merger would be possible only after the central leadership of the banks’ unions gives their go-ahead. In 2004, the United Forum of Bank Unions, which then represented 10 lakh employees, opposed the merger.
Based on their 2005-06 balance sheet, the merged entity will have an asset base of over Rs2 lakh crore, lower than that of State Bank of India and ICICI Bank, but higher than that of Punjab National Bank.
It will have a network of 4,800 branches and about 69,000 employees.
Shares of Union Bank, while off from their 52-week high of Rs142 back in September, are trading well above their 52-week low of Rs80.50. Similarly, Bank of India shares are well above their 52-week low of Rs79.70 though off their January high of Rs214.40.