Page 37 - Banking Finance March 2019

ARTICLE

 Avoid Duplicate / Double of Finance (Through Data (Synopsis of Financial Health Ratios of THREE
Warehousing). Banks)
 Better implementation of Risk Focused Internal Audit Ratios Ranks
(RFIA).
BOB VB DB
 Better Control by Regulator and Government of India.
Return on Equity-ROE (%) 2 1 3
 Better implementation of Corporate Governance Equity Multiplier-EM (Number of Times) 2 3 1
(Increase efficiency by following ethics).
Liability Mix-LM (%) 3 1 2
 Increase in Productivity Ratios of the Bank (Through
Asset Utilization Ratio-AUR (%) 3 2 1
Inter or Intra Firm Comparisons).
Return on Assets-ROA (%) 2 1 3
Conclusion: Credit Deposit Ratio-CDR (%) 2 1 3
Net Interest Margin-NIM (%) 2 1 3
Merger gives more benefits to the acquiring bank
particularly to reduce "Fixed and Variable Costs" and to Interest Expenses Ratio-IER (%) 1 2 3
control wastages of the bank to a large extent. In public Efficiency Ratio-ER (%) 1 2 3
sector Banks, 'Expenses Share' and 'Manpower Cost' in Total Burden Ratio-BR (%) 1 2 3
Income (NIM + Other Income) are in the range of 15% to
23% each. Hence, these costs will reduce drastically through But one important factor is to be look into by the acquiring
merger process. bank in merging process i.e., Strengthen the Organizational
Structure i.e., Centralization and Decentralization of various
In addition to this, acquiring bank can use Information operational areas of the Bank, span of control of various
Technology in a big way i.e., optimum utilization of existing operating units of the Bank. Undoubtedly merger gives
Alternate Delivery Channels like ATMs, Mobile Banking, number of advantages to the acquiring bank, at the same
CDMs, POS Machines, Internet Banking, Business time Controlling is very difficult due to increase in size of
Correspondents / Customer Service Points and Call Centres the Organization, Business Operations and Volumes of
etc. thereby it not only reduces per transaction cost of the transactions etc. To overcome this problem, from the day
bank but also to increase the bottom line. This can be one of merging processes, the acquiring bank should give
possible through mergers. The end result is the acquiring more focus on Control Function aspects for each and every
Bank may charge "Low Rate of Interest" on Advance business processes / functions i.e., how effectively and
Products (MCLR). Lower Rate of Interest on advances efficiently control the Bank Branches located in nook and
boosts the economic growth of the country further and also corner of the country.
it increases the Business Levels, market share and bottom-
line of the acquiring Bank. Other-wise, the objective of merger will be defeated, if
control systems are not well established / placed by the
acquiring bank. Due to availability of advanced Information
Technology Systems in the country, controlling Branches
located faraway from the Head Office is not a big problem
to acquiring Bank. To mitigate THREE important Risks of the
Banks i.e., Credit Risk, Market Risk and Operational Risk,
the acquiring bank should strengthen the Risk Management
Department, Risk Focused Internal Audit, System &
Procedures etc. then fulfil the objective of merger and the
required Capital Adequacy Ratio (CAR / CRAR) is not a
problem to acquiring bank.

References:
Annual Reports of Public Sectors Banks.

BANKING FINANCE | MARCH | 2019 | 37