In a move that has stumped the markets, UTI Bank and Global Trust Bank have unveiled a plan to amalgamate their operations. Prima facie an amalgamation will benefit the individual entities.
The merged entity will have a net worth in excess of Rs 10 bn. In terms of its network, the combined bank will have 157 branches and 321 ATMs. Greater reach and a larger balance sheet will enable the bank to maximize its growth opportunities. A plan for a foray into insurance has also been rolled out. The CMD of UTI Bank, Dr P J Nayak, will be the CMD of UTI Global Bank.
The merger follows the consolidation in the banking sector, which has been triggered by the new private sector banks. Earlier, HDFC Bank and Times Bank merged, followed by the deal between ICICI Bank and Bank of Madura. It is likely that in coming months, more such deals will hit the headlines.
The purpose of the merger is two fold. First, to extend geographic reach. Private sector banks, which have been on a high-speed growth trajectory over the last several years, are keen to develop a nationwide presence. This will take away that one big drawback that they face vis a vis the public sector banks. Building a network is time consuming, so therefore, the quickest way is to scheme up a merger/association. Second, size has become very important in the present environment where customers want their banks to serve up most financial products (universal banking). In such a scenario having a large balance sheet is very important. Here too, rather than raising more capital, a merger/amalgamation is a preferable route.
UTI Bank and Global Trust Bank stand to benefit from such an arrangement (this does not factor in the merger ratio). As a merged entity they have a greater reach, a larger balance sheet and a tremendous opportunity to cut costs by leveraging on technology. The last of these will be a key determinant of the success of the merger.
Axis Bank declared the results for the third quarter of the financial year ended March 2017 (3QFY17). The bank has reported 4.1% YoY growth in net interest income while net profits declined 73.4% YoY in 3QFY17.
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