News: Pact forges Indian bank powerhouse

(TT 16/09/2006) Mumbai - Three nationalised banks — Corporation Bank, Indian Bank and Oriental Bank of Commerce — today came together to form an alliance in certain areas to take on competition and cut costs. The trio will share resources, go for joint business syndications and venture into areas like capital markets.

Under the “collaboration and cooperation’’ agreement, the banks will share their treasury and IT resources and build a common e-payment system. Such a system will see customers of one bank paying less for using the other’s ATM.

Moreover, customers of these banks can also use the existing branches to remit money into each other’s branches in a different location.

This is for the first time that three domestic banks are coming together to form such an alliance rather than going in for a legal merger.

A memorandum of intent (MoI) was today signed by K.C. Chakrabarty, chairman and managing director of Indian Bank, B. Sambamurthy, chairman and managing director of Corporation Bank, and K.N. Prithviraj, chairman & managing director of Oriental Bank of Commerce.

Explaining why the banks went in for such an alliance instead of a merger, Chakrabarty said in present times, while size was a handicap, skill acquisition was also becoming difficult.

Moreover, technological adaptation is expensive. “Consolidation in the banking sector is not gaining strength as people have doubts in their minds,’’ he added. Given such circumstances, the Indian Bank chief said, smaller public sector banks will have to work out alliances that mitigate disadvantages of size.

Called the ‘OIC-Alliance’, the agreement includes building an e-payment system, sharing of IT resources and treasury resources. The other areas are a foray into capital markets, international and other financial ventures. The trio will also look at business syndications, sharing of training resources and a common procurement of IT and other assets.

Admitting that it could take a few months for the alliance to be visible on the ground, Prithviraj said the alliance did not mean that the three banks are going in for a merger.

“That is ruled out,’’ he added. Even after joining hands, the trio will not cross the 5 per cent market share, he added. Despite this, the alliance will lead to lower intermediation costs, apart from boosting the return on equity.