How Indian Bank-Allahabad Bank amalgamation proved an unlikely success

In 2019, the government announced the merger of 10 of its banks into four. These included Oriental Bank of Commerce and United Bank of India with Punjab National Bank (PNB), Andhra Bank and Corporation Bank with Union Bank of India, Syndicate Bank with Canara Bank, and Allahabad Bank with the Indian Bank.

Of these, the latter was a particular challenge for three reasons. First, unlike the other mergers, Allahabad Bank and Indian Bank were of roughly the same size (see chart). Second, the merger involved mid-sized banks rather than smaller banks merging with larger ones in the other three cases. And third, where the other mergers involved banks in the same region with similar work cultures, Allahabad Bank was headquartered in Kolkata and Indian Bank in Chennai.

The widely differing cultures were evident in the staffing. Though Allahabad Bank was slightly smaller in terms of business, it had many more people — 3,169 branches and 23,210 staffers, compared to Indian Bank’s 2,834 branches and 19,604 employees. The merger was complicated by the fact that the government had not allowed post-merger lay-offs for any of the banks under this process.

Also, Indian Bank, the anchor bank in this merger, is traditionally considered a conservative bank. But it had been profitable. In 2018-19, it made a profit of Rs 321.92 crore and its net non-performing assets (NPAs) stood at 3.75 per cent. Allahabad Bank, on the other hand, was considered a “zombie” bank, racking up losses of Rs 8,334 crore in 2018-19 and with net NPAs of 5.22 per cent.

Yet, a year later, the merger has shifted Indian Bank from ninth to seventh largest public sector bank and it is considered one of the success stories for its seamless merger, growing its business from about Rs 8 trillion to Rs 9.1 trillion at the end of December 2020. Last month, a report from ICICI Direct said Indian Bank has shown an encouraging performance considering the current situation and it remains positive on the relative performance of the bank.

Initially, for Padmaja Chunduru, MD and CEO of the bank, and her team that led the amalgamation, the prospect of merger was a nightmare. The fact that a mid-level shake-up was due in 2020 with over ten general managers slated for retirement, when the amalgamation was underway, added to the strain. And then, there was the Covid-19 pandemic to contend with.

With the average age of employees below 40, Chunduru said she decided to give top priority to the HR integration. She conducted six town hall meetings over the year and sought to convey the message that a merger would provide better opportunities for growth. Chunduru focused on the fact that Allahabad Bank expanded the bank’s southern footprint to east and north India.

To back this up, she fast-tracked promotions and transfers. For example, Mamta Kumari, an Allahabad Bank manager in Bihar, was promoted to zonal manager of Indian Bank’s Ernakulum branch, a position that would have taken two years in the ordinary course. Dheeraj Bhatia was promoted from assistant manager of Allahabad Bank’s Jabalpur office to head of the Inspection Centre in Delhi, a transfer he had needed for personal reasons.

All told, 2,000 staff members were repositioned as part of an amalgamation process and only 94 employees opted for VRS, which is also a routine number and not because of the amalgamation.

Overall, Indian Bank has rationalised just 180 branches, far fewer than its peer banks undergoing mergers (see table). Another 70 branches have been identified for closure over the next six to nine months.

After assuring job security, the management turned to skilling and identifying synergies under the “Project Sangam”, diplomatically named after the confluence of the holy rivers at Allahabad. To cope with the sensitive issue of culture clashes, the bank conducted a “culture survey” with the help of consulting firm Deloitte in which more than 15,000 employees participated.

The survey revealed surprisingly strong alignments between the culture practices of both banks. This complementarity made the integration of branch networks and improvements in asset quality relatively easy. So decisions on the technology platforms to be used in the merged entity were taken quite quickly with the technology partner Tata Consultancy Services, and the leadership team worked to address all interface issues in systems, processes, structure and people.

Common workshops were also conducted for both sets of zonal managers at Lucknow, Kolkata and Chennai pre-amalgamation. The sessions covered team building, integration challenges under HR, IT and other areas, communication and leadership skills.

A leadership development programme was conducted with around 400 mid-level executives to identify and build leadership capabilities.

Down the ranks, 14 aspiration workshops were conducted with around 180 participants from corporate office and field to discuss the bank’s strategy going forward. The bank also introduced the “buddy branch” concept. These buddy branches (of Indian Bank) were mapped to former Allahabad Bank branches to provide technology support and the managers of each were often deputed to each other’s branches.

There were many other processes that contributed to the seamless merger but the focus on HR ensured that the critical culture mismatch was addressed early. This, says Astha Daga of Anand Rathi Securities, has ensured that the bulked-up Indian Bank is in a position to compete more effectively and take on loans of bigger ticket size.