One’s relationship with one’s bank is one of the most difficult relationships to change. And now with automatic bill payments, EMIs, or equated monthly instalments, on auto-pilot and systematic investment plans linked to bank accounts, a change in your bank means a fairly big change in your financial life. But sometimes you don’t go to change, it comes to you. Customers of Bank of Rajasthan Ltd (BoR) may soon be going to the local branch of ICICI Bank Ltd. But changes in the life of BoR customers will be deeper than a change from a blue logo to an orange one, as customers of several other Indian banks that have been taken over in the past 10 years have discovered.

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Takeovers and mergers happen either due to strategic reasons, as was the case of the merger of Centurion Bank with Bank of Punjab and then of the combined entity of Centurion Bank of Punjab and Lord Krishna Bank before getting swallowed by HDFC Bank Ltd in 2008, or due to a bankrupt bank getting bailed out by another bank, nudged by the regulator or the government, as Global Trust Bank Ltd was by Oriental Bank of Commerce. Whatever the reason for the merger or takeover, change may come in two forms to you. One, if you are customer of the bank. Two, if you are a shareholder.

Change and the customer

For savings account holders of the bank that has been taken over, life changes little in terms of the interest on the deposit. Since the Reserve Bank of India has capped the interest rate at 3.5% per annum, this part of the relationship remains the same, as do most fixed deposit (FD) interest rates. Most acquiring banks let the FDs run their course, unless the deposit amount runs in crores, where the acquiring bank can renegotiate the rates. K.J. Udeshi, chairman, Banking Code and Standards Board of India, says, “Old terms continue, and acquiring banks have always honoured the acquired bank’s depositors. We have not received any complaints with regards to any such fixed deposit."

What do change are the associated services, fee structure and terms and conditions. Take for instance, the minimum balance requirement of BoR, which at Rs1,000 is one-tenth of ICICI Bank’s Rs10,000. So BoR account holders may find themselves nudged to a higher limit over a period of time. Fees for regular banking transactions can be dramatically different for a larger bank compared with a smaller bank that is taken over. For instance, non-maintenance of quarterly balance with BoR will cost you just Rs62.50 per quarter, compared with Rs750 per quarter with ICICI Bank. Your service menu may go up, but so will the cost.

In most cases, the acquiring bank gets in touch with you for formalities of new account numbers, debit cards and cheque book. More sticky are issues around post-dated cheques already issued by you. Says C.S. Jain, head, personal banking group, IDBI Bank Ltd, “Since the old entity ceases to exit, the customer cannot use the old cheque books or debit cards. If he has issued any post-dated cheques, he will have to take care of them. It’s better if the customer irons out some of these issues beforehand." This means you will have to recall the post-dated cheques and issue new ones.

Similar would be the story for all your electronic clearing service, or ECS, relationships, though the exact process will differ from bank to bank, with some banks being very proactive in keeping the transformation smooth for the customer. Says Jain, “When United Western Bank merged with IDBI Bank, we tried to cause minimum discomfort to customers. We used account mapping for ECS." This means that IDBI Bank got in touch with the entity (utility bills, home loan company, systematic investment plan) you have set the ECS for, and matched their ECS in place of the old ECS. But more often than not, it falls on you to cancel the older ECS relationships and create new ones. For stock- and fund-related ECS changes, in most cases, the fund and bank will make the changeover with minimum discomfort to you, but there may be cases where it does not happen—so you need to be careful. It’s best to check with your mutual fund if you need to initiate the process yourself or whether the fund house takes care of it.

What if you have a 15-year home loan with your bank, will your life change? IDBI Bank deputy managing director Jitender Balakrishna, who oversaw the United Western Bank and IDBI Bank merger, says, “Banks generally do not change the terms and conditions of loans. After all, it’s a contract, and it has to honour (it). But if the contract has a review clause, then the rate of interest could change as per the new banks rate. But since banks do not want to lose customers, their interest is always taken care of." With most home loan contracts coming with a review clause, customers could see their loan rates changing, though usually the acquiring bank chooses to have a separate portfolio for acquired banks’ loan customers, where the older rules still apply.

What you can do

Banks dislike losing their deposit base—that means you. So you can actually negotiate with the bank if you think the new terms are unfair. And, if still unhappy, there are many others offering loans. But remember, the new bank’s prepayment clause can still hit you hard.

If you are a shareholder, expect no tears if you get nothing when your bank goes bust. As a shareholder, even though you may be “small", when you buy shares you agree to take the risks associated with running a business. So if the shares of the bank getting taken over are valued at zero, such as those of Global Trust Bank and of Nedungadi Bank were, you get nothing. But if it has been a strategic merger, you may actually do very well. An investment of Rs1 lakh in Centurion Bank in 2003 would be worth more than Rs8 lakh today. And a similar amount in Bank of Punjab would be worth Rs9.5 lakh-plus.

Graphics by Naveen Kumar Saini / Mint