BoB, Dena, Vijaya to decide on organizational structure of merger in next week

Chief executives of Bank of Baroda, Vijaya Bank and Dena Bank will meet next week to discuss a plan to increase the number of organizational layers in the entity resulting from their merger, said a senior banker aware of the talks. This, he said, will be done to accommodate the larger workforce of the merged bank. The three banks put together have 85,675 employees, 9,489 branches and generate a total business of ₹14.8 trillion.

One of the proposals to be discussed is to change the current two-tier structure of Dena Bank and Vijaya Bank to a three-tier structure of Bank of Baroda or even to a four-tier set-up that the State Bank of India (SBI) has, the banker said on condition of anonymity.

The banker explained that while Dena Bank and Vijaya Bank have a two-tier set-up of zonal offices and a head office, Bank of Baroda has regional offices, zonal offices and a head office. SBI has regional offices, zonal offices, local head offices and a corporate centre of its head office—a four-tier structure.

“We are weighing the pros and cons of this structure and while a leaner set-up accelerates decision-making, a more elaborate set-up will help an organization the size of the merged bank,” he said.

The person added that a central steering committee has been formedand it comprises three CEOs and the executive directors of the three banks. Fourteen functional groups have been formed, comprising general managers. Some of the functional groups include human resources, information technology, stressed assets, corporate advances and retail advances.

According to the person cited above, the banks plan to retain only one head office of the three they have currently, but plan to distribute some departments among the three of them. “The merged bank will not be able to retain all the regional offices as well and employees working there will be transferred to other locations. However, at present, there is no plan for a voluntary retirement scheme,” he added.

In September, the government decided to merge three banks it owns—Bank of Baroda, Dena Bank and Vijaya Bank—in a move expected to reduce the amount of capital it needs to pump into these lenders. The merged entity, comprising two relatively stronger banks and a weak one, will be the third-largest lender in India after State Bank of India and HDFC Bank. The bank merger will take 4-6 months to complete, BoB CEO P.S. Jayakumar had said on 17 September.

This is the third major restructuring in the public sector banking space undertaken by this government. The first was the merger of the five associate banks of SBI with itself. The merger had resulted in a sharp jump in the combined entity’s bad loans portfolio, crimping its profit. The associate banks reported a loss of ₹5,792 crore for the March quarter of 2016-17 and ₹10,243 crore for the entire year. This resulted in the consolidated net profit of SBI going down to a ₹241 crore when the stand-alone net profit was ₹10,484 crore.