MERGERS AND INTEGRATION OF BANKS -INDIAN BANK AND ALLAHABAD BANK

Merger in banking sector in India has provided substantiation that it is the constructive tool for survival of feeble
banks by merging into larger bank. Mergers help banks to strengthen their financial base and access tax benefits
and direct access to cash resources. Results from various mergers of Banks in India earlier suggest that after the
merger the efficiency and performance of banks have increased in terms of different financial parameters and the
success of merger is reliant upon synergy gains created after the merger and overall performance of bank.

M Mixing
E Entities
R Recourses For
G Growth
E Enrichment and
R Renovation
At the outset we need to understand certain variables
Q1. Why the merger is a matter of concern?
Q2. What are the employees related issues of this merger?

MERGER IS A MATTER OF CONCERN ?

The size of newly merged Entity is a matter of concern because this merger will transform both the Banks into such
a big entity that now it can lead to problem of Too Big To Fail. Any failure of such an institution can cause problems
for the whole economy and government has to bailout these institution to avoid havoc. Hence every step has to be
taken rationally and should be precise.

While dealing with mergers and acquisitions, synergy can be generated in long run with the cautious usage of the
resources, exact valuation of the target and estimating the future prospects. The triumph of mergers and acquisition
deals depends on post-merger integration process, timely action and to keep check on the costs of integration
process.

Vision & Way forward

A vision and way forward needs to be published for the to be Merged entity and widely circulated on various
platforms. Full on Advertising campaign needs to be done regarding the to be formed merged entity to instil
confidence in the existing customers and employees as well.

The primary concern for the proper Health of the Merged entity is to put forward ACTUAL BUSINESS FIGURES.
If genuine data is not available then the entire process will be flawed and the outcome will be catastrophic.
Proper assessment of Asset quality is a definite pre-requisite.

Proper assessment of Technological know how and Integration process is to be undertaken. Care should be
administered not to end up at the mercy of some company to whom the technology related works for merger are
assigned.
Proper estimation of Manpower requirements and deployments is to be done meticulously. Right person in the right
place should be the motto for effective utilization of resources. Personal obligations and recommendations should
only be next to organizational interest.

BENEFITS OF BANK MERGERS

Scaling
A bank merger helps our institution scale up quickly and gain a large number of new customers instantly. Not only
does an acquisition give your bank more capital to work with when it comes to lending and investments, but it also
provides a broader geographic footprint in which to operate. That way, we achieve our growth goals quicker.
Efficiency
Mergers also scale our bank to more efficiently, not just in terms of our efficiency ratio, but also in terms of our
banking operations. Every bank has an infrastructure in place for compliance, risk management, accounting,
operations and IT – and now that two banks have become one, We are able to MORE EFFICIENTLY
CONSOLIDATE AND ADMINISTER THOSE OPERATIONAL INFRASTRUCTURES. Financially, a larger bank
has a lower aggregated risk profile since a larger number of similar-risk, complimentary loans decrease overall
institutional risk.

Business Gaps Filled

Bank mergers and acquisitions empower our business to fill product or technology gaps. Acquiring a smaller bank
that offers a unique revenue model or financial product is sometimes easier than building that business unit from
scratch. And, from a technology perspective, being acquired by a larger bank might allow our institution to upgrade
its technology platform significantly.
Talent And Team Upgrade
While not a factor on the balance sheet, every bank benefits from a merger or acquisition because of the increase
in talent at leadership’s disposal. A merger presents the possibility of bolstering our sales team or strengthening
our team of top managers, and this human element should not be ignored or downplayed.

CHALLENGES
Poor Culture Fit
Plenty of prospective bank mergers and acquisitions only look at the two banks on paper – without taking their
people or culture into account. Failure to assess cultural fit (not just financial fit) is one reason why many bank
mergers ultimately fail. Throughout the merger process, we have to be sure to thoroughly communicate and double-
check that employees are adapting to the change.
Not Enough Commitment
Execution risk is another major danger in bank mergers. In some cases, banking executives don’t commit enough
time and resources into bringing the two banking platforms together – and the resulting impact on their customers
causes the newly merged bank to fail completely. Avoid this mistake by DEDICATING ENOUGH RESOURCES
FOR A FULL INTEGRATION of the two financial institutions.
Customer Impact And Perception
While undergoing a Merger event at our bank, it’s critical for us to pay attention to the impact it has on our
customers. ESPECIALLY WITH THE BANKS BEING MERGED, customers often respond very emotionally to a
bank Merger – so it’s essential that we manage customer perception with regular, careful communication. And
once the merger is fully underway, we have to consider the impact on our customers at every stage: Anything from
changing technology platforms to financial products could impact our customers negatively if we don’t pay attention.
Compliance And Risk Consistency
A final danger to consider during our merger process is the risk and compliance culture of each bank involved.
Every financial institution handles BANKING COMPLIANCE AND BANKING REGULATIONS differently, but it’s
important that the two merging banks agree on their approach moving forward. When two mismatched risk
cultures clash during a bank merger, it negatively affects the profitability of the business down the road if they
haven’t come to a working solution.

A merger can be distinguished in the following phases:

PRE MERGER PHASE
 Financial position of transferor Bank
 Market Value
 Brand Value
 Communication Issues
 Share Holders & other stake holders’ view
 Assets & Liabilities
ACQUISITION PHASE
 Cost of merger & acquisition
 Maintenance of customer relationships during integration phase
 Knowledge transfer among units that are to be integrated
 Overcoming of staff’s suspiciousness of the other organization (‘Us vs. Them’ syndrome)
POST MERGER PHASE
 Corporate culture
 Existing value systems
 Staff qualification
 Stress Management
 Salary
 Technology
 HR Policy
 Leadership styles
 Core competencies
 Post Integration
 Allocation of responsibility
 Language barriers and country specific cultural differences.

PHASE WISE ANALYSIS NEEDS TO BE DONE UPFRONT FOR SMOOTH TRANSITION / INTEGRATION
MERGER OF SBI WITH ASSOCIATE BANKS-A CASE STUDY ON EMPLOYEES RELATED ISSUES
State Bank of India’s mega merger with its associate banks has been anything but smooth for some of the latter’s
employees. Whereas Officers and clerks working for the erstwhile associate banks feel that they have been given
a raw deal with several instances of arbitrary transfers and many officers losing out on their seniority post the
transfer. A senior official of the association said the employees are facing increased working hours as the servers
at SBI are unable to handle the traffic, and they (the staff) are still adjusting to the new working conditions. There
have been several instances of arbitrary transfers with allegations that SBI has not been following the rules
governing transfers. The issue of SBI refusing to pay overtime to the employees of the erstwhile associate banks
at par with employees of erstwhile SBI has been severely criticized.
"The merger will affect the seniority of top officials of Associate Banks and will also result in redeployment or loss
of jobs of some workmen and closure of branches and finally, the banks might lose some of their regular
customers," said C.H. Venkatachalam, AIBEA general secretary
It is imperative to be absolutely cautious not to send a message of bias or ill treatment to the employees of the
merged Bank.

How to deal with Employees related issues:

Communication is an unavoidable factor and effective communication can be of utmost importance for
management to deal with the individual employee reactions to the merger, and the anxiety and stress levels
following a merger.

Communication should be expected to focus on employees’ concern like layoffs, changes in work rules,
compensation, Technological knowhow and pension etc.
Transferor’s bank employees must be given some stimuli to boost their morale and they should be prevented from
various stressors.

The objectives and benefits of the merger process are to be clearly mentioned/communicated to all the employees
and an atmosphere is to be created where employees start believing that they are entering into a better entity post-
merger. The issue of employees’ perception towards mergers needs special attention.

Combined workshops, Sports events, Family gathering events with both the Bank employees will create a good
repo with the other Bank and drive away the fear of unknown among the employees.
To get rid of the notion of glorious uncertainties and instilling confidence in the Employees regarding the post-
merger workplace conditions is the first step to the success of the Merger process.