Amalgamation exercise ‘has been smooth so far’: BoB chief

We have a lot to do. As they say, the tip of your toe has just touched the water, you have to jump into the swimming pool. We are quite satisfied with the progress we have made. It has been a good journey. Compared to where we were in September 2018 (when the merger was announced), this exercise has been very smooth. Obviously, this has been due to many reasons and many people, including the Department of Financial Services, the regulators, and the chiefs of Dena Bank (Karnam Sekar) and Vijaya Bank (RA Sankara Narayanan), who had a highly institutional approach to getting people on board for the amalgamation. As a consequence of this effort, we have been able to cover this journey so far in a frictionless way. And, as we look forward, there is a significant sense of excitement and optimism. Our slogan for this amalgamation “ behtar se behatareen ” reflects the underlying objective, which is to become an even better bank for our customers, and through training and development, we will evolve into better managers.

The cost savings coming from revenue-side synergies and cost-side synergies are significant. In terms of numbers, while we have got it done, we are still going through the validation period and are buttoning it up.

We expect, some time in early May, to come back with the revised strategy, and to be able to show that the sum of the parts when brought together, the results are better than the sum of the parts. But clearly from whatever we have seen and worked on, the results are fairly strong.

What we are getting over here is breadth and spread/reach. Reach meaning more number of branches and outlets for customers to reach. As far as breadth is concerned, if you were to take any of the areas, we were comparatively thinly staffed in relation to the market opportunity. So, with this amalgamation, there is going to be a fair amount of breadth. There is going to be far more depth that is going to be available for us. The combination of breadth and depth is what is going to result in better financial results. In addition to that, there obviously are various forms of savings that come on the cost front – for example, the six data centers that we have between us will be reduced to two.

How will you deal with branch overlaps?

It is true that we will have overlaps. We have done the computation ....We probably have 10-12 per cent of branches that we may not need. But it is also true that in many sizeable and profitable markets, we don’t have a presence. The game plan is that we want to use the cost structure, but get a better revenue structure and more people by reorganising the branches. Reorganising branches will give benefits of revenue and customer base. The way we are thinking of approaching this is that at every city level, branches below a certain cut-off will either find a micro market or will be pushed upward to the next level of chain of command with a new look and location and so on.

I think, after looking at everything, we are going to be job creators; we are not going to see any reduction in jobs. Of course, the type of jobs that we are going to create will be different from what has been in the past because the capabilities, skill-sets and market requirements are different.

For example, when you compare a bank of our size with one of similar size in the private sector, there are lesser number of branches and more people. That is because they have more people on the sale side. So, we will also need to build – somebody also has to ask for business to get business. We have a lot of work to be done. Also, there will be significant natural attrition due to retirement of 3.5 per cent of the population (bank’s strength) annually for the next three years.

The government’s stake in only BoB was 63 per cent, and in the combined entity, was 65.6 per cent before the ₹5,042-crore capital infusion. After that it has increased. further. We still have some instrumentalities to raise capital.

We are working on an employee stock purchase plan (ESPS), bring into consideration financial profits for this fiscal, and ability to raise AT-1 issues for some amount of money. Also, if markets are good, some amount of divestiture of non-core assets, primarily financial investments in some other institution where we don’t have any significant economic ownership.

On the negative side, there are accounting adjustments on account of policy and some potential unforeseen issues. But I am fairly confident that the first two quarters should show consistency in growth and deal with the concern that growth will suffer due to amalgamation. That will enable us to go to the market to raise money in the third or fourth quarter. We will have reasonable organic profit coming in from here.

Growth will not be subject to external capital from the government. If it comes, we will take it...We can raise ₹1,200 crore to ₹ 1,500 crore from each pocket (ESPS, AT-1). So, we can access capital from multiple pockets, and our ability to grow should not be impacted by taking capital from the government.