While “mergers and acquisitions"are fairly commonplace in the corporate world, they rarely impact you on a daily basis. But what if your bank  undergoes a merger? The customers of Dena Bank, Vijaya Bank and Bank of Baroda are finding that out for themselves. On 10 September 2018, the government proposed to merge the three state-own banks. The merged entity will be India’s third-largest lender and the second-largest in terms of deposits. According to P.S. Jayakumar, chief executive officer of Bank of Baroda, the merger will take four to six months to complete. 

The banks’ merger is not the first. In 2016, the government decided to merge State Bank of India (SBI) with its five associate banks and Bharatiya Mahila Bank. As a result of the consolidation, there was a significant rise in SBI’s bad loans portfolio, which impacted the bank’s profits.

Bank mergers, however, may not be a bad thing for customers. “Bank mergers have become commonplace today. With institutions like banks falling in the ‘too big to fail’ category, one way to look at this is that your money is safer with a larger bank than a smaller one," said Nikhil Kamath, co- founder, Zerodha.

Here’s what to expect if your bank is next in line for a major consolidation.

Account holders are, perhaps, the ones who witness the most changes due to the merger of banks. Although you will remain an account holder in the merged entity, you will be issued new cheque books and debit or credit cards. “Your account number and customer IDs, as well as the associated IFSC codes may change," said Adhil Shetty, chief executive officer, BankBazaar.

As a result, you will have to update IFSC and other details with the income tax department, insurance providers and for your mutual fund investments. You will need to give fresh mandates for your SIPs and EMIs, and will have to give fresh standing instructions for automated bill payments etc. all over again. 

If you have fixed deposits, the name of your bank might change but there’s no need to worry about interest rate changing. “Fixed deposits are contracts, and it is not possible for banks to change the rate mid-way. If you are locked into a fixed deposit, you can continue till maturity on the same interest rate even if the deposit rates of the merged entity are higher or lower," said Shetty. However, the rate of interest you receive on your savings bank account might change. 

There might also be branch closures. Dena Bank is already in the process of selling the properties housing its branches. The merged entity will only retain one of the head offices of the three banks, doing away with all regional offices and transferring the employees.

A more immediate impact of the proposed merger is the inconvenience caused to customers owing to bank employees going on strike. Bank unions have called for a nationwide strike on 26 December to protest the merger, because it will result in employees being transferred or made redundant. 

If you have taken a loan from a bank that is on its way to a merger, you don’t need to worry about your interest rates shooting up. Like fixed deposits, loans qualify as contracts, so your interest rate will remain unchanged. “In case of MCLR-based loans, the interest would be reset at the end of the reset period selected by the borrower. If the loan is on base rate, the customers will get the option of switching to MCLR after the merger. Otherwise they will be reset to the base rate decided upon by the merged entity," said Shetty. Your loan will simply be transferred to the merged entity and you will continue to pay EMIs as usual. 

However, at the end of the fixed rate tenure, your interest rate might be hiked, according to the rates fixed by the merged entity. In such a scenario, you could consider transferring your loan to a different lender. But keep in mind that doing so comes with its own expenses. For instance, if you want to port your home loan, the new lender might charge valuation fees, processing fees, etc. So, do your calculations beforehand, and if the refinanced loan counterbalances the extra charges, make the switch.

While technically shareholders don’t have to worry much when it comes to a merger, they also might not have much of a say. Although mergers need clearance from shareholders, in the case of the SBI merger, for instance, minority shareholders were unable to object, even if they wished to. To object, one needed to own at least 1% of the share capital in one of the banks or have the support of 100 shareholders. Needless to say, there were no objections.

But shareholders don’t stand to lose much if the merger does happen. “Technically there should be no impact on the share value. However, there can be a brief or extended period of loss in valuation," said Rahul Jain, head, personal wealth advisory, Edelweiss. Indeed, following the announcement on 10 September, shares of Bank of Baroda plunged 13%. However, those of Dena Bank jumped 20% and Vijaya Bank gained 6%. “Experience suggests that smaller entities generally get a better value out of merger," said Jain. 

The transition process itself should be fairly smooth for shareholders.

“The Indian equity markets have evolved tremendously and protect retail investors in multiple ways. Whenever such corporate actions take place, the onus of fulfilling all the regulatory and legal requirements along with issuance or adjustment of shares lie with the company. On a particular date, an investor receives new shares directly credited into their demat account while the existing shares are debited," said Jain.

While it can be a confusing process, if handled well by the entities involved, a bank merger should not be too difficult for customers to navigate. Be prepared for small changes and trust your bank to communicate them to you when the time comes.

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