Larger balance sheet helps you give bigger loans: Indian Bank's Chunduru

'Indian Bank is strong in terms of business correspondents', said Chunduru

The government in August last year announced plans to merge 10 public sector banks (PSBs) into four. The move included Allahabad Bank's merger with Indian Bank, creating the seventh-largest public sector bank (PSB) with Rs 8.08 trillion on its books. In an interview with T E Narasimhan, Padmaja Chunduru, managing director and chief executive officer, Indian Bank, said work is proceeding on schedule and it would be one of the most successful mergers in the Indian banking sector. Edited excerpts:

How is the merger process (with Allahabad Bank) progressing?

It is on schedule and we are sticking to our deadlines. However, it is only after the government comes up with the notification that we will be able to decide on the share swap and the other details.

Employees, mainly from Allahabad Bank, have raised issues and concerns...

There were some issues initially because they were worried about promotion, transfer, etc, which I am addressing in townhall meetings. I spent 20-25 hours attending these meetings. Since there is hardly any overlap of branches, there will not be any large-scale transfer up to the middle level. The perception of the staff has changed after these meetings. They are more optimistic now. 

Any unforeseen challenges?

The test is the execution. Despite the best planning, you cannot rule out the unexpected. While products are similar in almost all the public-sector banks, some tweaking are required. IT integration is a big challenge, but we are well-prepared for that. We have hired a retired deputy managing director of State Bank of India (SBI), who handled the merger of SBI with its subsidiaries.

What is the time frame you are looking at for IT integration?

It will take 9-12 months and will have lots of cost saving. Allahabad Bank has a few licences like the general ledger from Oracle and it is a better system than Indian Bank’s. Therefore, we have decided to adopt the Allahabad Bank system. Additional licences are much cheaper than going in for a request for proposal. A lot of hardware, such as servers, are available at Indian Bank. These can easily accommodate the data of Allahabad Bank.

When do you think the merger will start paying dividends?

In terms of business, profits, and others, from 2022.

Does the merged entity require any capital?

For a 10-12 per cent growth rate, we don’t require any capital. If we want to grow faster, we have headroom in both tier I and tier II. We expect (after merger) to touch Rs 10 trillion by 2022, and that may require around Rs 2,000 crore capital.

Any advantage that you were not expecting but have come up with the merger?

There are a lot of new things that have emerged. A larger balance sheet automatically enables you to give bigger loans to bigger customers. While the amount that the Indian Bank can lend at present has been restricted to Rs 3,000 crore per customer, the combined entity can disburse loans of up to Rs 5,000-6,000 crore. This will bring in bigger customers and we will be able to have negotiating power in terms of pricing. We will also be able to syndicate the loans. Luckily, neither bank has used the full exposure limits in all the big companies.

Indian Bank has some tie-ups for cross-selling insurance products, both life and general insurance. Allahabad Bank has an insurance subsidiary called Universal Sompo General Insurance. 

We assume it will be included in the merger and with that when Indian Bank also starts selling, it would be an additional income for both the banks.

Indian Bank is strong in terms of business correspondents, which is a strength of Allahabad Bank also. Their model is slightly different, but it is a good model and maybe we will replicate it in the next year. There is a lot of business they do through business correspondents, which will bring down the cost.