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.

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4 PSU banks put up NPAs worth over Rs 7,500cr for sale

At least four large public sector banks have put up nearly Rs 7,500 crore worth of non-performing assets (NPAs) on sale to asset reconstruction companies (ARCs) and other financial institutions.

Lenders including State Bank of India (SBI), Bank of Baroda, Dena Bank and Andhra Bank have decided to sell a large part of their NPA exposures to accounts which are undergoing resolutions at various insolvency courts.

“We expect to recover a large part of these assets on a cash basis. This also helps us avoid delays in resolution due to the excessive litigation,” said the head of a large public sector bank.

On November 20, Bank of Baroda listed 35 bad loan accounts worth Rs 4,237 crore for sale on its website. These include: Jindal India Thermal Power (Rs 334.93 crore), Rathi Steel & Power (Rs 290.52 crore) and Rolta India (Rs 287.38 crore).

“The interested ARCs/ banks/ NBFCs/FIs can conduct due diligence of these assets with immediate effect after submitting expression of interest and executing a non-disclosure agreement with the Bank,” BoB said on its website.

Similarly, state-owned Andhra Bank has invited bids for the proposed sale of its NPAs comprising 53 accounts, with a principal balance of Rs 1,552.96 crore on a cash basis only. The e-bidding will take place on December 3. The bank will execute the assignment agreements and fund transfer on or before December 10.

Another government-owned lender Dena Bank proposed sale of 84 NPAs, with an outstanding exposure of Rs 3,324 crore, to be sold through an e-bidding process on November 29. The country’s largest lender SBI had also put up 11 bad loan accounts for sale to ARCs and financial companies to recover dues worth nearly Rs 1,019 crore.

Price still pinches

“Banks are putting up many distressed assets on sale, but pricing continues to be an issue. However, with more cash deals and push for a clean-up from the regulator has helped us garner a better price. They (banks) also want to avoid the NCLT (National Company Law Tribunal) after the Reserve Bank of India’s (RBI) February 12 circular. Hence, they are putting up more assets on sale,” said a chief of a large ARC.

The circular mandates all lenders to push all borrower accounts for resolution under the Insolvency & Bankruptcy Code (IBC) if a successful recovery has not been made within 180 days of the loan turning into an NPA.

Banks and ARCs have been negotiating hard over the past several years. Given the rush to recover loans and increasing supply of bad loans, banks are willing to take more hair-cuts or losses on its loans than before for immediate cash recovery.

Asset Reconstruction Company (India), or Arcil, one of the country's largest ARCs, plans to buy about Rs 5,400 crore worth of stressed assets from banks. For this, it plans to raise additional Rs 1,500 crore in the next six months.

In FY18, Arcil acquired about Rs 2,700 crore worth of assets, while the same for the industry stood at over Rs 20,000 crore, said Pramod Gupta, Arcil’s Chief Financial Officer (CFO).

With a clear focus on retail and mid-sized distressed assets, Arcil's CEO and Managing Director Vinayak Bahuguna said his firm is selectively looking at some of the industrial assets too. “In the mid-sized segment, we are looking at companies with debt up to Rs 5,000 crore. We are looking at steel, textile and road projects and some select stressed power projects.”

In Q2, Bank of India had put up a total of Rs 10,000 crore worth of NPAs on sale through auction. The bank’s CEO and MD Dinabandhu Mohapatra said the management is negotiating resolutions for power assets worth Rs 3,000 crore. Till March, cumulative estimates suggest that about one-third of the bad loans of banks have been purchased by ARCs.

As on September, banks are sitting on a huge pile of NPAs worth over Rs 10.50 lakh crore on its balance sheets, creating an opportunity for ARCs and domestic and foreign investors.

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Dena Bank Q2 loss widens on higher provisions, asset quality weakens

Public sector lender Dena Bank's second quarter loss widened to Rs 416.70 crore on elevated provisions YoY, with weakening asset quality sequentially.

The bank had reported loss at Rs 185.02 crore for September quarter 2017 and Rs 721.71 crore in June quarter.

Net interest income during the quarter grew by 20.8 percent to Rs 725.6 crore compared to Rs 600.67 crore in same period last year.

Asset quality of the bank weakened further in quarter ended September 2018. Gross non-performing assets (NPA) as a percentage of gross advances were higher at 23.64 percent against 22.69 percent in June quarter and net NPA increased to 11.70 percent against 11.04 percent QoQ.

In absolute terms, gross advances as well as net advances in Q2 were higher by 1.73 percent and 2.95 percent quarter-on-quarter to Rs 16,140.4 crore and Rs 6,902.4 crore respectively.

Provisions and contingencies dropped 22.4 percent sequentially to Rs 867.8 crore during the quarter ended September 2018, but were higher by 17.82 percent compared to year-ago.

Other income (non-interest income) fell 7.6 percent year-on-year to Rs 357.3 crore but operating profit increased 11.2 percent to Rs 442 crore in Q2FY19.

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BoB-Dena-Vijaya Merged Bank to get growth capital

The government will provide an additional capital cushion to the proposed merged bank to be formed by amalgamation of Bank of Baroda, Dena Bank and Vijaya Bank to start the new bank on a stronger footing, a senior government official told ET. 

“We will like to have a cushion of at least 50-100 basis points above the existing regulatory capital requirements. The bank will be provided with that growth capital,” he added. The actual capital infusion requirement in money terms will be available only after financials of the July-September quarter are available. 

In September, the government had proposed a merger of the three banks to create the country’s third biggest lender.Capital adequacy ratio (CAR) will reach 11.5% in 2019 under Basel III norms, and according to government data, the proposed combined entity had CAR of 12.25% by the end of June 2018. 

“This may be further impacted as these banks finish their due diligence and make provisioning for other requirements. If we want the combined entity to have a credit growth of 15%, we will need growth capital,” the official quoted earlier, said. 

The amalgamation will be the first three-way consolidation of banks in India, with a combined business of Rs 14.82 lakh crore. The government expects synergies to lead to larger distribution network and more business for the new lender. The government has started the exercise to look at capital requirements of all PSBs and has been holding meetings with their top deck. 

“We may have to give some support to Dena Bank in this fiscal if it falls short of regulatory requirements. For now, the other two lenders look good in terms of provisioning requirements,” said a finance ministry official. 

Last year, the government had announced a Rs 2.1 lakh crore bank recap plan of which Rs 1.35 lakh crore was to be given through re-capitalisation bonds, and the balance Rs 58,000 crore was to be raised from the market by the banks. 

So far, the government has infused Rs 70,000 crore through recap bonds, and the balance Rs 65,000 crore will be given in this fiscal. In July 2018, Rs 11,336 crore was infused in five PSBs to help them maintain regulatory norms. 

Source- Economic Times

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BoB, Vijaya Bank, Dena Bank set up panels to merge operations

Bank of Baroda (BoB), Dena Bank and Vijaya Bank have decided to set up internal committees, which will help integrate their functions before the merger happens, said a person familiar with the development. In a meeting on Wednesday, the bankers also decided to appoint three separate valuers to arrive at share swap ratios, the person said, adding that the valuer appointed by one bank will also evaluate the other two banks, before a common ratio is arrived at and sent to the government. This was the second meeting after the merger announcement.

The committees will comprise the chief executive officers (CEOs) and executive directors of the three banks. “We have decided to form a few internal committees to integrate functions in the three banks. They include committees on credit, human resources (HR) and information technology (IT),” the person said, requesting anonymity.

Mint had reported on 3 October that although the three banks use the Finacle core banking solution developed by Infosys Ltd, they have different versions of the software. While Dena Bank and Vijaya Bank are on Finacle 7.2, Bank of Baroda had recently upgraded to Finacle 10.2.

On 10 September, the government had proposed the merger of the three state-owned banks. 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 Ltd, with a total business of ₹14.82 trillion.

Following the merger announcement, the managements had assured the staff that the government has decided to retain the banks’ individual identities even after the bank merger.

Analysts were wary of the human resource complications. A research report by Kunal Shah of Edelweiss Securities said challenges on human resources, process integration, branch rationalization and management bandwidth, will pose integration risks. “Roadblocks, for example, due to agitation from employees cannot be ruled out.”

A Kotak Institutional Equities note said that the merged entity will have 2,205 branches in western India, while the south and north will have 846 and 713 branches, respectively.

This is the third major restructuring in the public sector banking space by the 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 made 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 mere ₹241 crore, while the stand-alone net profit was ₹10,484 crore.

Source - Livemint

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Reducing NPAs is Dena Bank’s first priority, says CEO

Reducing NPAs is Dena Bank’s first priority,The second priority is the tripartite merger with Bank of Baroda and Vijaya Bank and the third priority is improvement in CASA component, Karnam Sekar, MD & CEO, Dena Bank.

What would be your key focus areas over next one year?

Dena Bank is one of the 11 banks under prompt corrective action (PCA) list. We are in a very bad shape actually with respect to non-performing assets. We have a huge pileup of NPAs, both in the corporate sector and the retail sectors. That would be the first priority. The second priority is merger with Bank of Baroda and Dena Bank and improving the profitability by cutting down the overall cost of funds would be my second priority. We are in number three position as far as CASA percentage is concerned. A further improvement of CASA component in the overall deposit portfolio would be my third priority. 

The first priority continues to be containing the NPAs and do as much recovery as possible and control the credit cost because the bank is in deep trouble and incurring loss only because of this huge credit cost. Corporate credit is contributing significantly to our troubles but fortunately because of the NCLT cases which are being handled in the last 12 months, we are seeing some good progress there. If we are able to recover some of the corporate credit NPAs, then we will come out of this problem. 

Of course, second priority, apart from this business deals would be the amalgamation of Bank of Baroda, Dena Bank and Vijaya Bank to form a fourth entity which would be the second largest public sector bank after State Bank of India. So that would be the second priority. Further, the Dena Bank board has passed a resolution last Monday. 

We will wait for the other banks too to pass the board resolutions respectively and after that we will chalk out a common plan. Maybe, we will form a coordinating committee of all these three banks and then set milestones -- what should we do going forward and how to harmonise HR, how to harmonise the systems and procedures, how to harmonise the product portfolio, how to harmonise the credit processes and how to harmonise the IT infrastructure as well. 

So harmonising these three -- IT, HR and the systems and procedures and product portfolio -- also would be our priority. The coordination committee of all the three bankers would take care of this. We have a timeline when that will be done and we will stick to the timeline that is being stipulated now. Maybe in the next two, three quarters we will try and complete the whole process of amalgamation. 

This would be unique amalgamation because three different banks are coming together and unlike State Bank of India associates where there were some similarities, here it will be three totally different banks and all three have to amalgamate and form a fourth body. That will be a unique experiment. Once this is done successfully, maybe the Government of India will think of some more. 

This consolidation was started in 2017. All the bank boards have given their view on this consolidation process and as a culmination of that, only last week we passed the board resolution and communicated to the government also. 

Could you give us a timeline for the merger to be completed?

We will get some clarity only after all three banks sit together. The first stage would be to pass the resolutions. The board has to approve the initial process. Our board has already approved and on 29th September, Vijaya Bank is meeting and in due course Bank of Baroda board will also meet. If all three boards approve this initial process, then we will sit together, form a committee and arrive at the correct timelines. 

Could you quantify the total stressed assets on the books and how much resolution do you see over FY19?

Out of almost total assets of around Rs 90,000 crore, both stressed NPAs and partially written off accounts account for Rs 19,000 crore. Out of Rs 19,000 crore, at least Rs 5000 crore will be resolved by March 2019. That means 25% of the existing portfolio would come down. That is our target for March 2019. So Rs 19,000 crore would come down to around Rs 14,500-15,000 crore. That is my estimate for the year FY19. 

Where would slippages stand and what would be the level of recoveries?

On repayment also, we are making progress in the retail slippages. We have stopped further slippages, The entire corporate credit has been recognised and there is no further slippage. As a PCA bank, we are not doing any further lending. 

What kind of capital infusion do you expect from the government?

The finance minister has been assuring that whatever capital is required for the regulatory compliance will be given. As a PCA bank, we are not growing much and so growth capital is not being discussed. But whatever is the regulatory capital requirement, we have been assured will be met by the government. 

Source- ET Now

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Govt announced merger of Bank of Baroda with two banks to form India's 3rd Largest Bank

The government has announced that Bank Of Baroda, Vijaya Bank and Dena Bank will be merged into a single bank which will become India's third largest bank. Rajeev Kumar, Secretary Department of Financial Services, said in a press conference today that employees interest would be protected in the merger process. 

The merger of five SBI associate banks was done without any job losses, he said. The three banks will continue to work independently till the merger. 

Kumar said the merger would help improve operational efficiency and customer services. He said it was time for the next generation of strategic banking reforms. 

The government had initiated numerous reforms over the last four years, especially with respect to banking and to ensure clean lending process, he said.

He said the stock of non-performing assets (NPAs) had reduced by Rs 21,000 crore in last quarter. Banks recovered Rs 36,551 crore in the first quarter of FY19. There was a need to increase scale and synergy for growth momentum to continue, he said.

Kumar talked about various steps the government had taken to clean banking including the Insolvency and Bankruptcy Code (IBC). He said now people knew that if they had taken loan, they would have to return it. He said the IBC was fundamentally changing the creditor-debtor relationship in India. He said all loans over Rs 150 crore would be monitored by a separate vertical in each bank.

"The government is keen to take steps so that history isn't repeated as far as NPAs are concerned. The government approach is to make the banking sector’s fundamentals strong," he said.  

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Dena Bank Q1 loss widens as provisions double

Despite lower bad loans,  government-owned Dena Bank's first quarter FY19 net loss widened five-fold year-on-year (YoY) to Rs 721.71 crore from  Rs 132.65 crore.

The loss grew on the back of higher provisions towards bad loans. The bank had a massive net loss of Rs 1,225.42 crore in the January to March quarter of FY18.

Provisions and contingencies more than doubled to Rs 1,118.75 crore in Q1 this year from Rs 522.48 crore in June quarter last year. Provisions towards non-performing assets (NPAs) rose to Rs 1,244 crore YoY from Rs 435 crore. Sequentially, provisions reduced from Rs 1,991 crore in the March quarter.

NPAs

During the quarter, gross NPAs reduced in absolute terms but deteriorated as a percentage of total loans due to a limited expansion in credit growth.

Gross NPA ratio as a percentage of total loans worsened to 22.69 percent from 22.04 percent in March end 2018 and 17.37 percent in June quarter last year.

However, in absolute terms, gross NPAs declined to Rs 15,866 crore from Rs 16361 crore in the March quarter and increased from Rs 12,994 crore as on June quarter last year.

Net NPA ratio improved to 11.04 percent from 11.95 percent as on March end and 11.22 percent as on June end 2017.

NII and Other income

NII or net interest income (the difference between interest earned and expended) grew to Rs 742.74 crore, up 10 percent from Rs 675.05 crore a year ago.

Non-interest income or other income dropped 32 percent to Rs 161.39 crore in June end 2018 from Rs 237.29 crore in June end 2017.

Capital

Signalling weakness in financial strength, the state-owned bank's capital adequacy ratio (CAR) declined to 10.60 percent as on June end 2018 from 11.09 percent as on March 2018 and 11.65 percent as on June end 2017.

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