PSB merger: Indian Bank announces equity exchange ratio with Allahabad Bank

A larger balance sheet automatically enables the Bank to give bigger loans to bigger customers. Illustration: Ajay Mohanty
Indian Bank on Thursday announced a fair equity share exchange ratio of 115 equities of Rs 10 each for every 1000 shares of Rs 10 of Allahabad Bank as part of the amalgamation of the latter in the Bank. The record date for the issue of equity shares of the Bank to the shareholders of Allahabad Bank is fixed as March 23, 2020.

The Board of Directors, in a meeting, approved that the share exchange ratio, subject to statutory and regulatory approvals. A grievance redressal committee headed by retired Judge of Madras High Court, Chitra Venkataraman was formed to address the grievances of minority shareholders individually and collectively holding at least one per cent of the total paid-up equity capital of one of these two Banks.

The minority shareholders can between March 6 and 12 submit written grievances to the committee , which will submit its recommendations to the Board within seven days. The final view or decision will be taken by the Board on this within three days from the date of the report. The government on Wednesday notified the amalgamation of Allahabad Bank in the Indian Bank.

The government had in August last year announced plans to merge 10 public sector banks (PSBs) into four. The move included Allahabad Bank's merger with Indian Bank, creating the seventh-largest public sector bank (PSB) with Rs 8.08 trillion on its books.

Earlier, Indian Bank MD and CEO, Padmaja Chunduru told Business Standard that while products are similar in almost all the public sector banks some tweaking is required. IT integration is a big challenge, but the Bank is well-prepared for that. The bank hired a retired DMD of SBI, who handled the merger of the SBI subsidiaries with SBI. She added that it will take 9-12 months and will have lots of cost-saving synergy. 

"Allahabad Bank has a few licenses like the general ledger from Oracle and a better system than Indian Bank. Therefore Indian Bank has decided to adopt the Allahabad Bank system. Additional licenses are much cheaper than going in for a new RFP. A lot of hardware, such as servers, are available at the Indian Bank. These can easily accommodate the data of Allahabad Bank," Chunduru added.

On a question over when the merger will start paying dividends, Chunduru said, "in terms of business, profits, and others, from 2022." She added that for a 10-12 per cent growth rate, the merged entity don't require any capital, but to grow faster, they have headroom in both tiers I and II.

"We expect (post merger) to touch Rs 10 trillion by 2022, which may require around Rs 2,000 crore capital," she said.

Chunduru said, a larger balance sheet automatically enables the Bank to give bigger loans to bigger customers. While the amount that the Indian Bank can lend at present has been restricted to Rs 3,000 crore per customer, the combined entity can disburse loans of up to Rs 5,000-6,000 crore. This will bring in the bigger customers and the Bank will be able to have to negotiate power in terms of pricing. "We will also be able to syndicate the loans. Luckily, both the banks have not used the full exposure limits in all the big corporates," she said.

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