By the turn of this month, it would be one year since the mega merger of 10 public sector banks (PSBs) into four was put into force. After the Union government announced its decision in August 2019, these PSBs were doing the ground work for the actual integration of the six merging banks (MBs) with four anchor banks (ABs). Symbolic of the change, name boards of the MBs were replaced by those of the ABs with effect from 1st April last year. A year before this, two PSBs were merged with the Bank of Baroda.
How smooth were these merger processes? Did they impact the customers? How did the IT platforms get integrated? How were human resources (HR) practices harmonised? How were the systems and procedures integrated? How were the employees treated?
Studying the impact of mergers on the claimed economies of scale and consequential higher earnings, efficiency and financial performance is premature at this stage. It is for academicians to undertake such full-fledged study.
As one who was associated with the industry for over three decades in different roles, I propose to make an assessment of the two merger exercises from purely a practitioner’s point of view. This analysis is based on the voluminous anecdotal data culled out from the stakeholders through diverse sources—letters from the affected customers to newspapers in the local media, discussions with union functionaries, staff at the ground level, IT professionals and HR practitioners within the banks and messages under circulation in social media. For convenience, I would like to focus on the following five key areas:
1. Systems and procedures
2. Migration to different IT platforms
3. Integration of HR systems and practices
4. Impact on decision making
5. Cultural differences
Let me dwell on each of them with specific examples.
Systems and Procedures
There were differences in the internal systems and procedures followed by MBs and ABs. For instance, the procedures of processing loan applications—those that come from a huge mass of personal borrowers—appraising them, sanctioning, documentation, and disbursements were different among the MBs and ABs.
In one MB, all these were centralised in a single office to ensure speedy disposal within a fixed time frame. In contrast, in the AB, the whole process has to pass through different layers spread in a few offices.
After the integration, the practice of AB is being followed resulting in a new experience of unusual delay affecting the loan aspirants and those who come for renewal or enhancement of existing credit facilities.
In one MB, a customer could get her cheque up to, say, Rs20,000 encashed instantly by approaching the single window operator (SWO), who was empowered to scrutinise the cheque, verify the balance in the account, formally authorise the payment and disburse the cash.
Or, if she applied for a demand draft (DD), the SWO would process the DD application, debit the amount to the account of, or receive cash from, the applicant, feed the details to the system from his own computer terminal, get the DD printed immediately, sign it and hand it over to the applicant in a matter of a few minutes.
After the merger, these customers find that there is no system of SWO in the new entity.
In another MB, for a loan against pledge of gold, the process was simple: the branch manager or his second in command could scrutinise the application, appraise the gold, sanction the permissible amount, execute a single document, which incorporated the promissory note and the letter of pledging the security to the bank along with what in banking parlance is called ‘take delivery letter’ that authorises the bank to take the security with the consent of the applicant.
Similarly, in the case of a loan against a fixed deposit (FD), the decision would be at a single point; the document would be a single letter of demand promissory note (DPN)-cum-pledge of the FD authorising the bank to appropriate it against the liability in case of default.
Post-merger, such customers find a more layered processing, sanction, and disbursement and three documents—a DPN, a letter of pledge and a take delivery letter-each attracting separate stamp duty casting an additional burden on the small borrowers.
In one MB, a depositor could also pledge her FD for an overdraft limit and through cheques or net banking, draw money whenever she needed to. It was in the nature of a running account. The interest would be on the actual debit balance in the overdraft account.
After the merger, such depositors find that AB does not have the system of overdraft on pledge of FD; if they need temporary funds, they must avail a loan at one shot irrespective of the immediate needs.
In another MB, if there was a wrongful debit of an account, the branch manager had the power to reverse it and re-credit the appropriate amount to the account. In the AB, such corrective actions need prior sanction from higher authorities. Managers have no autonomy to rectify human or system related errors.
These instances demonstrate how post-merger, instead of adopting simpler, customer-friendly systems prevalent in MBs, ABs have retained their own cumbersome systems.
When the State Bank of India (SBI) took over, during 2017, its five associate banks, the IT alignment was smooth because before the merger the IT platforms were uniform in SBI and its associate banks. In the case of merger of PSBs, the integration posed a series of problems.
Each of the PSBs had its own customised version of IT software developed in-house or supplied by IT companies. The feedback I have gathered reflects the mess the banks are now in due to inadequate understanding of the differences.
A higher version of Finacle supplied by Infosys that was being followed by one MB was dumped in favour of the lower version destabilising the system itself after their so-called IT integration.
The field staff of the MBs had hardly any familiarisation exercise with a different template, nor were there any detailed do-it-yourself kits. They were simply asked to operate a new unfamiliar package. The messages that went viral from November onwards illustrate this.
Here are a few samples of the messages circulated in WhatsApp groups:
Pls have proper track of your deposits & keep your receipts & passbooks safe, they gave me a shock when they told that my 4 lakh FD is not reflected in system, it will become very difficult to prove in the absence of proper records or proof to produce.
XXX Mobile (An app of the AB) never opens in first attempt. After several attempts, it opens followed by a message ‘server related issues, try later’. The payees’ list has vanished. It was there yesterday. But vanished today. I had to add payees’ details again and again.
My cheque was returned by the bank stating that the balance in the account was subject to a lien. There was no loan or any liability on my part.
I had effected a remittance through NEFT to a beneficiary in M town. My account was debited but the beneficiary did not get the money in his account. When I approached the manager, he asked me to complain in writing to which there was no response for ten days! Only when I picked up an argument with the manager my account was re-credited with the missing amount.
In several cases, cheques were returned for ‘want of funds’ when the accounts actually had balances to cover the cheque and penalties were debited to the account of the customer. Quarterly interests on fixed deposits (FDs) were not credited on the due dates. This failure affected the payment of loan instalments linked to deposit interests.
There were cases of non-renewal of matured FDs, despite auto-renewal mandate; when personally issues were raised, the banks asked the affected persons to give letters and such letters would not be acted upon promptly.
In transfer of data of customers of MBs to ABs data integrity was affected. Depositors found to their dismay that their relationships with nominees were different from what was originally provided: spouse became ‘other’, son became daughter and vice versa.
Addresses of the account-holders were not correctly transferred to the database of AB. Standing instructions and periodic interest payment mandates were not carried out.
This is first part of a two-part series.
(TR Bhat is former president of All India Bank Officers' Confederation (AIBOC) and former officer of Corporation Bank)