The recent mergers between banks has been an effort in crisis management

When asked how he became the world's richest man, Bill Gates replied, "First, I was in the right place at the right time. Second, I saw the vision. Third, and most important, I took action." Perhaps, the Oriental Bank of Commerce (OBC) had the vision of instant geographical advantage with the Global Trust Bank (GTB) takeover and therefore, they took the action.

With the amalgamation, OBC, a north India-based bank, gains not just in terms of a geographical network of 103 branches, 265 ATMs and 8.3 lakhs customer base in southern and western India. It also gains GTB's technological infrastructure and focus area. Clearly, it was a sinking GTB that strengthened OBC.

Close on its heels, comes the news of the IDBI merger with IDBI bank by the end of FY 2005. The merger will create an entity with assets worth over Rs80,000 crore and attain the size and strength comparable to the big players. The merged entity would have operations in retail, commercial and development banking.

The quick succession of mergers wakes us up to the realisation that bank consolidations are no longer pipe dreams. The towering plans of IDBI are just a case in point.

In terms of asset base, post merger, IDBI ranks seventh. Smitten by the merger benefits of size, strength and asset worth, IDBI has plans for more mergers up its sleeves. And the plans are nothing short of ambitious. It aims to displace ICICI from its current number two position in the short term and SBI from its dominance of the banking sector in the medium term.

But undoubtedly, mergers are not all roses. Both for IDBI bank and OBC one of the parties has been a traditional public sector dwelling whereas the other has been a high profile private outfit. So while OBC has been a public sector bank, GTB a technology- savvy private bank. On the other hand, IDBI is a conservative development financial institution and IDBI bank is a new-age private sector bank.

Owing to these differences, the mergers would throw up challenges relating to legacy, corporate culture and technology for the successful fusion of the human resources of the two entities with distinct work cultures into a cohesive team. The daunting task at both the places would be to handle the mindset, salary differences and comfort levels with technology.

On the positive side, the profitability of IDBI would increase after the merger, as IDBI bank's portfolio of assets and liabilities also earn better. The 95 branches, 302 ATMs and nearly one million customers of IDBI bank will help IDBI to raise finances for its development finance activities. It would also enable IDBI to reduce its cost of borrowing and lend infrastructure projects at a lower rate.

For OBC, visibly, the positive is an effortless network in the south. It also gains approximately Rs300 crore worth of fixed assets of GTB. Its deposit base of Rs35,673.5 crore would also increase by Rs6,920.9 crore. On the flip side, GTB's non-performing assets of Rs9,000 crore would be adjusted against OBC's assets.

Besides the fiscal issues, the bigger challenge would be human resource management and operation integration. Both IDBI and OBC have been a typical government functional unit - average salaries, lackadaisical attitude on the part of the management, no aggressiveness on technology. On the other hand, both IDBI bank and GTB have been high paying and technology-savvy institutions. For these employees, the merger would bare them to the massive clash between work cultures that can actually be daunting.

Post merger, the employees and customers of both IDBI bank and OBC would face similar opportunities and set of problems. However, the shareholders of GTB stand to lose everything unlike those of IDBI who will benefit from the swap ratio. Sadly, the GTB shareholders have been left to face losses with not even an assurance of consideration for any compensation from the amalgamation of GTB with the OBC.

Earlier, in June 2002, the Benares State Bank was integrated with Bank of Baroda and in March 2003, Punjab National Bank took over Nedungadi Bank. These too, like the recent GTB-OBC amalgamation were driven by crises. The IDBI bank-IDBI merger though not driven by a crisis, is technically a bailout for IDBI - with the Rs9000 crore-government assistance to facilitate a clean up of its balance sheet.

Will these two mergers set the tone for future consolidations, unlike the mergers based on mutual synergy as between ICICI Bank and the Bank of Madurai, or a smart expansion strategy on the part of HDFC Bank in buying over Times Bank?