Amalgamation has led to all-round gains for merged entity: Indian Bank MD

In a Q&A, Padmaja Chundru says issues like equal stature of Allahabad Bank and Indian Bank and retirement of 10 GMs were addressed fairly with continuous communication with staff and customers

Despite the pandemic and other challenges, Allahabad Bank's amalgamation with Indian Bank concluded smoothly, with the final technical merger (software integration) last month, says Padmaja Chundru, managing director and CEO, Indian Bank. Chundru spoke to T E Narasimhan about how the bank addressed the pandemic and the way forward for the combined entity. Edited excerpts:

Q. How easy or difficult was it to conclude the amalgamation, especially in the backdrop of pandemic?

It was felt that the merger of Allahabad Bank (AB) with Indian Bank (IB) would be tough (vis-à-vis other banking mergers announced by the government in parallel), as this involved the coming together of two mid-size, but equal-sized banks, each having more than 100 years of heritage and rich history.

Apart from size, geographical coverage of the banks was also totally different, with Indian Bank having its major presence in the southern region and erstwhile Allahabad Bank in the central and eastern regions. Little overlap in geographical presence was perceived. As the cultural fit of the employees was unknown, integration of manpower was considered a major challenge.

More than 10 General Managers were due for retirement during the January-August 2020 period, leading to a significant churn in leadership while the amalgamation was underway. In addition, there were challenges on account of the Covid-19 pandemic and resultant lockdown, which restricted the movement of people.

The bank has managed to address all these problems with fairness, transparency and continuous communication with staff and customers.

The aim was to ensure the whole integration process impacted our customers and customer-related operations minimally. The bank had a clear vision of completing all pre-amalgamation processes well in advance for successful merger.

Q. What were key synergies and cost benefits you have obtained due to amalgamation?

Benefits were largely through economies of scale leading to cost reduction, better profitability, wide product offerings and adoption of technology to drive the growth process. The investments in IT hardware, licenses and AMCs especially delivered a huge bang for the buck.

Increased CASA mix led to better product pricing, and lower cost of deposits led to improved profitability. Erstwhile Allahabad Bank had a higher CASA than Indian Bank and the amalgamated entity now has an increased CASA mix. A larger network of branches, ATMs and Business Correspondents resulted in leverage for business growth.

Indian Bank’s market share used to be 1.79 per cent and 1.80 per cent in deposits and advances, respectively. After amalgamation, combined entity’s share rose to 3.46 per cent and 3.47 per cent, respectively.

CASA share to total deposit ratio increased from 34.6 per cent in March 2020 to 41 per cent in December 2020. With the increase in CASA mix, the cost of deposit has reduced.

The bank has already saved over Rs 25 crore on account of savings in rent, electricity and other administrative cost in 2020-21 and around Rs 22 crore in printing & stationery, advertisement and publicity, postages, etc.

The synergies are also derived from catering to a wider clientele base, enhanced level of business opportunities, complementary business mix between corporate and retail, higher lending capability, investments in JVs/ subsidiaries – cross selling and up selling leading to higher fee income, improved treasury management and rationalisation of surplus fixed assets.

As far IT cost synergies, there is a saving of around Rs 145 crore in 2020-21 due to rationalisation of DC/DR centres, AMCs, Licenses, vendor rationalisation across applications. Operationalisation of processing centres in all the zonal centres for retail, agriculture and MSME proposals.

Q. How many branches were rationalised and how many people were repositioned?

As on date, the bank has rationalised 180 branches besides 25 Zonal Offices, head office of erstwhile Allahabad Bank at Kolkata, 12 currency chests, 5 staff training centres, 5 service branches and 3 large corporate branches. We have planned to rationalise another 50 branches before the end of this fiscal.

Another 70 branches are identified which would be rationalised during the next 6-9 months. Around 2,000 staff members were repositioned as part of an amalgamation process. After April 1, 2020, 94 employees opted for VRS.

Q. What next for the amalgamated entity? Any fundraising on the cards?

A growth of 10-12 per cent in 2021-22 is envisaged. RAM (retail, agriculture and MSME) is already 56 per cent of total advance and both RAM and Corporate will grow. By 2024-25, we are looking to increase our NIM (net interest margin) to 3.21 per cent and reduce net NPA (non-performing assets) to 1.31 per cent (domestic NIM of 3.13 per cent in Q3FY21 and net NPA of 2.35 per cent as on December 2020).

The bank’s CRAR (capital-to-risk weighted assets or capital adequacy ratio) is 14.06 per cent as of December 2020 which is well above the regulatory requirement. We have issued AT 1 bonds of Rs 2,000 crore in December 2020 and Tier 2 bonds of Rs 2,000 crore in January 2021. Board approval is also available for further raising of equity capital of up to Rs 4,000 crore through QIP/FPO/rights issue or in combination thereof.