Friday, January 4, 2008

PSU banks alliance efforts has been in vain

The counterfeit coalition by a few state-owned banks was formed to maximize their business have failed to deliver results. In 2006 two such associations were formed- one involving Bank of India, Union Bank of India and IDFC, and the other featuring Oriental Bank of Commerce, Indian Bank and Corporation Bank. According to senior officials who have been part of these coalitions said that the partnerships have fallen apart, at least in spirit, if not on paper. But according to records the CEOs of the participating banks deny that the effort has been in vain.

Said Corporation Bank CMD B Sambamurthy: “So far as we are concerned, the alliance is on.” The alliance between OBC, Indian Bank and Corporation Bank — popularly known as OIC — was signed on September 15, 2006, by then bank chairmen.
The alliance was for a strategic business association in identified areas for mutual benefit. The areas relate to syndication of loans, collections of cheques, remittances and jointly sourcing of computers and ATMs. By engaging in such a partnership the banks were hoping to bolster their businesses, both asset-based and on the fee income front, in the face of stiff competition. OBC CMD Alok Misra too said that alliance was on. “However, it is not possible to derive full benefit of the alliance, because in many areas we are at loggerheads and in some areas we co-operate.”

But the senior officials of the participating banks said that though the idea was good, a lack of passion to follow the agenda of the alliance by those at the helm proved to be a snag. Frequent changing of CEOs of some of the participating banks, every time brought changes in the strategies adopted by a new bank CEO. This too affected the working of the alliance, the officials said.

In the case of OBC, CMD KN Prithviraj was replaced by Alok Misra, who earlier was the executive director of Canara Bank. And in Indian Bank, KC Chakrabarty was replaced by MS Sundera Rajan, who was earlier executive director of the same bank. While B Sambamurthy the third signatory, continues with the same bank. Similarly, in Bank of India, M Balachandran was replaced by TS Narayanasami, former CMD of Indian Overseas Bank, while MV Nair of Union Bank of India is still at the helm of affairs.

According to sources from the OIC coalition said that a partnership is working in areas like syndication of loan, collections of cheques and remittances, but it do not work when it comes to sourcing of IT related issues. “Sourcing is one of the key strength of the alliance which gave them enormous bargaining power to reduce prices from IT vendors. We do not get the same benefit now with the partnership falling apart,” said a senior bank officer.

Mr Nair said the partnership between Union Bank of India, IDFC and Bank of India is still on in areas like syndication of loans and collection of cheques.

But senior officials from Bank of India said that alliance has got separated. “It was an improbable task and nothing is happening on it,” said a senior BoI official.

Industry observers are not really surprised on seeing failure of alliances. They indicated to a similar partnership between State Bank of India and IDFC in 1998 on take-out financing, which failed to take-off.

In 2005, Power Finance Corporation tied up with 11 financial institutions and banks for a single window access of funds for power companies aimed at fast track financial closure of power project. The eleven members included LIC, Bank of Baroda, Canara Bank, Central Bank of India, Corporation Bank, Indian Overseas Bank, Jammu & Kashmir Bank, OBC, PNB, Syndicate Bank and Union Bank of India.

The announcement of the alliance between PSU banks came at a time when the finance minister P Chidambaram had called upon banks to merge in order to emerge as large global banks. The alliances was being considered as first step towards merger and it was even termed as virtual mergers.

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