Banking Merger

On the driving factors for the merger

AK: The driving force for this merger is to set up a robust bank with a high capital base. In brief, the underlying driving factors are to cope with pressures in the form of increasing capital adequacy requirements, tightening prudential norms, and the increasing demands on resources to be committed for technology and infrastructure. For UTI Bank, there was the additional regulatory pressure to bring down its promoters' stake to below 40 percent in keeping with licensing conditions.

On the merged bank

AK: The new entity will effectively combine the strengths and complementary features of the two banks. It will be strongly capitalised with a networth that will be in excess of Rs 1,000 crore by end-March 2001.

On synergies

AK: The two banks have lot of similarities. They are roughly of the same size, age and have retail presence. Both have a strong technology base with similar technology platforms. Both banks also have the advantages of new private sector banks:- lean staff, automated and non-unionised work environment and connectivity.

Although there could be an overlap of branches because of the merger, there are also some complimentary strengths. Global Trust Bank, has a fairly strong clearing bank business and UTI Bank, is strong in cash management products. UTI Bank, with support of UTI has strong Corporate Base, while GTB is one of the strong retail Bank.

On product portfolio

AK: Consumers will be the beneficiaries from this merger. The merged entity is expected to have a focus on retail. With good technology and backing of UTI, retail customers will benefit in terms of more ATMs, deposits, and loan products.

On UTI Bank's public sector image and integration

AK: Both UTI Bank and GTB basically are manned by bankers from PSU and old Private sector Banks and their work culture at the senior management level is quite similar. Unlike the ICICI and Madura merger, integration of UTI and global will be comparably much smoother.

On the impact on Human Resources

AK: Like in any consolidation between two entities, employee retrenchment is going to happen sooner or later. In this case as a new entity is being formed, employees from both banks, who do not fit in the scheme of things will face prospects of retrenchment.

On consolidation in the banking sector

AK: Recent spate of bank mergers has led to the M&A scene in the Indian banking industry warming up. Mergers and acquisition route is providing a quick step to acquire competitive size and offering banks an opportunity to share markets and reduce cost of product development and delivery.

Consolidation in the banking sector is inevitable Mergers of smaller, newer banks would be much easier than the PSU banks, due to legal and social constraints. India is now moving in the direction of fewer but larger mega banks.

While merging banks should keep in mind the inherent strengths and weaknesses of a taken over bank. Fundamental features like Portfolio, NPA levels, capital adequacy, technology levels, staff issues should be closely considered when planning for a merger.

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Data(Global):

Ð'* CrÐ"©dit Agricole buys CrÐ"©dit Lyonnais for Ð'Ђ1.9bn in 2002

Ð'* Citigroup acquires Golden State Bancorp for US$5.8bn in 2002

Ð'* JP Morgan Chase merges with Bank One in US$59bn deal in 2003

Ð'* Bank of America buys FleetBoston Financial for US$49bn in 2003

Ð'* BNP Paribas pays US$2.4bn for United California Bank in 2003

Ð'* Banco Santander Central Hispano buys Abbey National in Ð'Ј8.5bn deal in 2004

Ð'* GE Money pay $400m for Australian Financial Investments Group (AFIG) - AMS and Wizard home loans - in 2004

Ð'* National Australia Bank sells National Irish Bank of Ireland and Northern Bank to Danske Bank for Ð'Ј967m in 2004

Ð'* Royal Bank of Scotland buys Charter One Financial for US$10.5bn in 2004

Ð'* Kaupthing buys Singer & Friedlander for Ð'Ј547m in 2005

Ð'* Bank of America pays US$35bn for MBNA in 2005

Ð'* Bank of America pays US$3bn for 9% of Bank of China in 2005

Ð'* Barclays pays US$4.2bn for 54% of Absa in 2005

Ð'* Unicredito buys HVB Group for Ð'Ђ15.4bn in 2005