Merger of common interests?

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Merger of common interests?

Wednesday, 19 September 2018 | Pioneer

Merger of common interests?

Now that the initial euphoria over the mega merger of Vijaya, Dena and Bank of Baroda has died down, question is for all its operational efficiencies and economies of scale, who will still take care of the bad debt or reduce the burden of non-performing assets? Although both Vijaya and Baroda banks are in better shape as of the last quarter — Vijaya Bank posted a net profit of Rs 144 crore, while BoB’s figure stood at Rs 528 crore — Dena Bank posted a net loss of Rs 721 crore.

And this is a drag on the system though the two stronger banks are expected to dilute the weaknesses of the third and the combined reach is expected to shore up the prospects of the weakest link too.

Of course, the counter-argument goes that there will be no more accumulation of debts given better monitoring and control over points of loan disbursal. But then Dena Bank anyway has been prevented by the RBI to give out more loans. So apart from getting benefits of a lower aggregate risk profile, what is needed is to restore confidence of each of the bank’s customers through an ethical and unified culture that ensures synergy rather than divergence, a drawback of most bank mergers.

Then there is the added issue of convincing each consumer that their interests will be protected, considering all three banks individually command the confidence of a small but loyal consumer base. Of course, the merger was necessitated by economic realities and should just be looked at as a short-term corrective. Course correction needs a longer time and a more executable intent.  

 

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