The Recent merger of Bank of Baroda, Vijaya Bank & Dena Bank and why NPA occurs at Public sector bank is discussed.

1. SEMINAR ON
CONTEMPORARY
ISSUES
PRESENTED BY
VIRENDRA SINGH BHATI
MBA(CMAT)- 3rd SEMESTER

2. MERGER OF BANKS &
NPA ISSUE

3. SYNOPSIS
 History of Indian Banking
 Nationalization of Banks
 Merger of Banks introduction
 Case study of recent mergers of banks
 NPA ISSUES
 Raghuram Rajan’s report on NPA

5. NATIONALIZATION OF THE BANK
 1969- 14 Banks
 1980- 6 Banks
 1993- PNB + New Bank of India
 2013 – Bhartiya Mahila Bank
 At present total- 19 Banks

7. MEANING OF BANK CONSOLIDATION
 Bank consolidation is the process by which the
banking company takes over or merges with
another. This converges leads to a potential
expansion for the consolidated banking institution.

8. RATIONALE BEHIND BANK CONSOLIDATION
 problem of stressed assets can be tackled
effectively
 It makes PSB in a better position to compete with
private sector banks and foreign banks.
 Other reasons for consolidation include-
economies of scale, revenue enhancement, value
maximization, efficiency gains, cost savings,
diversification of customers and assets etc.
Economies of scale means the cost advantage that
arises with increase in scale of activities.

9.  Post merger govt. can divest some of its
shareholding in these PSB and reduce the overall
amount that the govt. needs to inject into them to
deal with the problem of stressed assets.
Government
Bank A
Bank B
Bank C
Bank D

10. MERGER OF SBI & ITS ASSOCIATES

13. BEFORE AND AFTER MERGER
PARAMETERS SBI PRE-
MERGER(FY 17)
SBI POST
MERGER(FY 18)
Deposit Base (in Rs crore) 2,044,751.0 2,706,344.0
Advances (in Rs crore) 1,5711,078.0 1,934,880.0
Net Profit/(Loss) 10,484.0 -6547.0
Gross NPA 177,826.0 223,427.0

14. WHY BANK OF BARODA, VIJAYA BANK AND
DENA BANK ARE BEING MERGED ??
 The government announced the amalgamation of three
banks — Bank of Baroda, Vijaya Bank and Dena Bank
— aimed at creating the country’s third largest bank with
a business of Rs 14.82 lakh crore and over 9,600
branches across the country.
The rationale
 For long, it has been recognised that having several
banks that are majority-owned by the government,
virtually doing the same business, and competing for the
same pie of customers wasn’t a sensible strategy.
 It also meant a lower return on the capital employed by
the government which has competing demands for
funds, and growing competition.

15. HOW MERGER SHOULD HELP
1. Mergers are often advocated on the basis of
synergies. These could be in terms of
 operational efficiency with a large pool of staff in a
merged entity being put to work for boosting business,
 expanding reach and offering more services or products.
2. On a standalone basis, Vijaya Bank had strength in the
South while Bank of Baroda and Dena Bank had a
stronger base in Western India.
3. From the government’s and regulator’s point of view, the
move will lead to a lower NPA (non-performing assets)
ratio for the new bank compared to the NPA ratios of 11.04
% for Dena Bank, 5.40 % for Bank of Baroda and 4.10%
for Vijaya Bank.

16. CHALLENGES OF MEGA MERGING
 People side issues-
Human resources can often be a deal breaker:
contrasting HR practices and aligning these with
employee expectations or aspirations will also test the
new management.
 Overlap of branches
 Huge Bad loans
 Leadership — choosing one of the CEOs to head
the new bank and with a reasonable tenure.
 Besides this, addressing the concerns of unions
and shareholders.

17. WHAT ARE NON-PERFORMING ASSETS
(NPA)?
 Money or Assets provided by banks to companies
as loans sometimes remain unpaid by borrowers.
This late or non-payment of loans is defined as
Non-Performing Assets (NPA). They are also
termed as bad assets.
 In India, the RBI monitors the entire banking system
and, as defined by the country’s central bank, if for
a period of more than 90 days, the interest or
installment amount is overdue then that loan
account can be termed as a Non-Performing Asset.

18. WHAT PROF. RAJAN SAYS ON NPA’S
Raghuram Rajan, former RBI Governor & Chief
Economist at IMF

19. WHY DID THE NPA OCCUR?
 The NPA of the 38 listed banks collectively crossed
Rs 10.17 lakh crore (134 billion dollar) in the 4th
quarter of the last fiscal, with the PSB accounting
for the bulk of it.
 According to former RBI Governor Prof Raghram
Rajan ( “Note to Parliamentary Estimates
Committee on Bank NPA’s ”)-
 Over- optimism:- From 2000-2008, the Indian
economy was in a boom phase and banks,
especially public sector banks, started lending
extensively to companies.

20.  Slow growth:- Due to the financial crisis in 2008-
09, corporate profits decreased and the
Government banned mining projects.
 Loss of Promoter and Banker interest :-
Once projects got delayed enough that the
promoter had little equity left in the project, he lost
interest.
 Fraud :- The system has been ineffective in
bringing even a single high profile fraudster to book.
 Malfeasance :- Bankers were overconfident and
probably did too little due diligence for some of
these loans.
Excessive reliance on SBI caps and
IDBI to do the necessary due diligence.

21. HOW NPA CAN RESOLVE?
 Improve governance of public sector banks and
distance them from the government.
1. Public sector bank boards are still not
adequately professionalized and more independent
body decides board appointments.
2. There is a talent deficit in internal PSB
candidates.
 Improve the process of project evaluation and
monitoring.
 Strengthen the recovery process further.
 Government should focus on sources of the next
crisis. It should refrain away from setting ambitious
credit targets or waiving loans.