Strategic Merger of Vijaya Bank and Dena Bank

with Bank of Baroda

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Agenda
► Introduction
► Porter’s analysis of Indian Banking
► SWOT analysis of the individual entities
► Comparative analysis
► Initial Speculation
► Turnaround Truths
► Operational & Cultural Challenges
► Strategy of Merged Entity
► Challenges in Strategy Implementation
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Introduction
Central government proposed the amalgamation of State-owned Bank of
Baroda, Dena Bank and Vijaya Bank to create India’s third largest bank as
part of reforms in the public sector banking segment.
Bank of Baroda is the third largest PSB while Vijaya is 17th largest in the
hierarchy of 21 banks. Dena Bank is an even lower 20th.
The merger comes at a time when all PSBs are walking the thin edge of
negative profits. However, we see that there is no talk of synergies, essential
for mergers, which can pose many challenges for the merged entity.
This is also speculated to be precursor to other such moves.

Porter’s Analysis of Indian Banking
Potential Entry of new competitors
High entry barriers since RBI
controls the issuance of licenses
for opening up a bank.
Bargaining power of suppliers
RBI is the only authority that
controls the currency in
circulation in the economy
through Monetary Policy, so it is
a monopolistic market
Rivalry among
competing banks
There is not much of
differentiation possible in
the services offered in the
Indian Banking industry due
to stringent regulations of
RBI
4
Bargaining power of customers
It is high, since customers have
many banks to approach and can
easily shift to another bank to
meet their needs
Potential of Substitute products
There is constant innovation in
the
` financial services sector with
the wide range of demands of
customers, which is being
catered by Fintech services

SWOT Analysis – Bank of Baroda
Strength
Diversified branch network with 5330 branches with
portfolio of banking services , Holds various
government accounts, Good capital adequacy
ratio of 13.2%, helping it sustain its
solvency levels
Opportunity
Vision to transform itself into a
bancassurance driven financial institution.
Exit from expansionary monetary policy to more
calibrated one. Improved return on technology
spend
5
Weakness
High growth of NPAs (9.9% of gross advances in
FY2016), Low overseas presence with over
dependence on Indian Market (89.6%), Forex and
other scams involving bank employees
leading to penalty. Low brand equity
compared to private banks
Threats
Intensifying competition
Lukewarm global inter-bank lending.
Private banks for their better facilities and high
functionality
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SWOT Analysis – Dena Bank

Weakness
Strength
Rural banking expertise. Govt. schemes Less penetration as compared to other banks.
implementation. Emphasis on customer satisfaction Limited advertising in comparison with leading
through modules like customer ratings. Credit card banks. Less emphasis on IT support
in rural India. Drive-in ATM
counters and Smart cards in
Mumbai.

Opportunity Threats
International banking Economic crisis and fluctuating economic
Favorable Government schemes. Doing scenario. Highly competitive
aggressive marketing in order to improve environment with foreign banks
brand value
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SWOT Analysis – Vijaya Bank

Weakness
Strength
Low presence in all parts of the country except the
High business per employee. Southern region. Low brand equity compared to
Strong presence in Southern India private banks
One of the very few banks which posted positive net
profit

Opportunity Threats

Penetrating in the untapped rural markets.

Merging with modern high-tech banks to Threat from other banks with high market share to
increase the customer base. Insurance sector. erode their customer base
Branchless banking. International Banking Unorganized money lending market
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Comparison of entities
Parameters Bank of Baroda Dena Bank Vijaya Bank Merged Entity

Total Business (Rs Cr) 1,029.810 1,72,940 2,79,575 14,82,325

Deposits (Rs Cr) 5,81,485 1,03,020 1,57,325 8,41,830

Employees 56,360 13,440 15,875 85,675

Branches (Domestic) 5,502 1,858 2,130 9,490

RoA (%) 0.29 -2.43 0.32 -0.02

Net NPA (%) 5.4 11.04 4.1 5.71

CASA Ratio (%) 35.52 39.8 24.91 34.06

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Initial speculation
▫ The amalgamation of the three PSBs has been decided through the Alternative Mechanism for
consolidation of public sector banks constituted in November 2017, comprising three cabinet
ministers.
▫ As per the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970, the Central government must consult with the Reserve Bank of India while formulating
such amalgamation schemes, and place them before both Houses of the Parliament for their
endorsement. The final power to decide on the merger/amalgamation scheme rests with
Parliament.
▫ Decision-making on bank mergers through the ministerial mechanism amounts to an imposition
from above. This attenuates the functional autonomy of the bank boards, and could adversely
impact the concerned banks’ business operations, financial health, morale of the officers and
employees and the confidence of the customers.
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Initial speculation
▫ These banks have no history of sharing business platforms. The organizational disruption caused
in these PSBs through the merger would relegate every other activity to the backstage. The
banks concerned will have to do fire-fighting for the next few years, adversely affecting other
banking activities, merely in order to integrate people, processes and procedures.
▫ •Amalgamation of the balance-sheets of the three PSBs will only alter the NPA and capital
adequacy ratios through financial engineering, without helping in the process of actual NPA
recovery
▫ After the merger, Vijaya Bank will see marked deterioration in its financial metrics. The non-
performing assets (NPAs) will be a problem for all the three banks with cumulative gross NPAs
around Rs 80,000 crore
Turnaround Truths
Missing the moment
Precious momentum might be lost if the
merged entity fails to capitalize on the fleeting
market opportunities, especially when the
Discord between change initiatives and core morale is high.
business
Heavy investments in technology and
innovation can wither if there is no strategic fit
with the mainstream operations of the
organization
Mistaking incremental improvements for
strategic transformation
Operational efficiency brought about by the
merger can be immediate and short-lived but
might serve well to blind the top management
from the need to keep reinventing the business
strategically

Being unrealistic about limits

Keeping expectations that cannot be met in the
short-to-medium term might deter from making
changes that are achievable

Mapping duplicate customers
New customer ID’s need to be
allotted, especially if the customer
of one bank has an account with
multiple banks
Operational challenges in strategy implementation
Differences in technology
platforms
Each of the three banks engages
multiple vendors in order to develop
its system including the online
interface.
Closure of local branches
Customers will have to deal with
the branch rationalisation exercise
Lack of a single strong entity:
BoB is in a better condition
compared to many other public
sector banks, and in particular
Dena and Vijaya Bank. But, by no
means can it be considered to be a
strong bank today.
Revision of interest rates
The three banks have different
interest rates for loans and
deposits, hence an advisory panel
needs to be set up to fix interest
rates for the combined entity
Potential requirement of capital
infusion from government:
The merged entity would require a
capital infusion from the
government to even stay two
percentage points above the
minimum.
 Layoffs Compensation

Cultural challenges in strategy implementation

Performance
Deployment
appraisal
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ORGANIZATION STRUCTURE
VIJAYA BANK BANK OF BARODA DENA BANK

Branch
Head Office Nework
Head Office

Regional Offices
Indian Overseas Branches
Regional Office

Metro Urban Rural

Branches

20 Regional Offices 13 zonal & 75 Regional offices 18 Regional Offices

5467- Indian Branches 1130 branches
104- Foreigner Branch
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Structure of Merged Entity - Challenges

▫ The geographic structure of ‘head office- zonal office-branches’ should be
retained in the merged entity
▫ BoB has strong presence in international operations. Any international
operations of the other two entities to be merged into this arm
▫ BoB has a strong presence in the western part of India especially in Urban areas.
Similarly, Vijaya bank has a presence in South India
▫ Rural outreach of Dena Bank is higher than BoB and Vijaya Bank
▫ Vijaya Bank has a portfolio of innovative products such V-FeeHive, V-QuickPay
etc. and so does BoB.
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Structure of Merged Entity

Reporting
Head Office
Product
Implementation

Overseas Regional
Banking Offices

Financial Rural
Products Banking

Branch
Offices
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Strategy of Merged Entity Challenges

▫ Analyzing the structure and strategic behavior:

▫ Dena Bank: management dominant

▫ Bank of Baroda: Competitor Centric Cost- Controllers
▫ Vijaya Bank: Customer Centric Innovators
▫ Identifying a single strategy that would suit the various archetypes would be a
big challenge.
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Strategy of Merged Entity – Balanced Scorecard

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Challenges in Strategy Implementation

▫ Achievement of a common knowledge base: Information availability
▫ Centralized Pay Structure: Diverse designations, ranks
▫ Lowering NPA’s of the combined entity: Only for future loans
▫ Branch Rationalisation: Severance Costs
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Thank you!