Search the Internet          Tips  Sites: Finance, Investment

'If there are other good fits, more mergers might take place'

Here's an edited, abridged transcript of The Money Chat of rediff's readers with
Ramesh Gelli, chairman, Global Trust Bank, on January 31. We reproduce this for the benefit of readers who may have missed the Web-event.

Moogambo: Do all banks in India plan to contribute to the Prime Minister's Relief Fund?

Ramesh Gelli: I'm confident that the banking industry in India will certainly come to the rescue of the affected people in Gujarat in every possible way.

Some of these may make donations for the relief of the quake-hit, as Global Trust Bank has done (all the employees of Global Trust Bank have decided to do so). Or, banks may extend special relief loans to the affected people at a concessional rate, with a moratorium to reconstruct their businesses; or, they may reschedule the existing loans and even make them soft loans.

Anilwawa: I just can't understand this: so many banks are merging and vying for a share of the pie -- ANZ-Starndard Chartered, HDFC-TimesBank, HSBC-Amex and GTB-UTI. Is the banking pie large enough to sustain everybody?

The banking industry in India has been growing at a compounded growth rate of 15 per cent per year over the last 15 years. It is expected to grow at the same rate over the next 10-15 years, at least.

For example, for this year (2001), the industry may add about Rs 150,000 crore (Rs 1.5 trillion) to its deposits. Also, in India, financialisation of assets is around 0.6 while even in some of the developing countries, it is about 1.0.

Thus, there is scope for the banking industry to grow much larger than what it is today. The market does offer opportunity to banks.

However, this opportunity will be more favourable for banks that are technology-savvy, innovative in products and service, highly customer-focused, and keen on building a strong brand.

Mridu: There has been a consistently good performance by GTB since its inception in 1994. However, there has been an accelerated performance by UTI Bank only in the last one year, thanks, it seems, to P J Nayak's arrival. Considering this, the swap ratio of 9:5 is unjustifiable. Your comments, please.

I do agree generally with your observation, Mridu, about the performance of the two banks.

The swap ratio of 9:4 (not 9:5 as you put it) was arrived at taking into consideration a number of quantitative and qualitative factors, which included the SEBI price ratio; then, the book value ratio; then, the EPS ratio and maintainability of profits ratio.

In addition, factors such as the core strengths, the size, the structure and the brand values -- current and potential -- were taken into account. Based on that, all concerned agreed to the ratio of 9:4.

Suraj: Between the two brands of UTI Bank and GTB, your bank is popular, and has a great ad campaign. The proposed merged entity should have continued with the GTB name, or, at least, taken the name of Global Trust UTI Bank.

There is no doubt that GTB is a strong brand, Suraj. UTI is also a very strong brand. This has been fully exploited by UTI Bank in this year. Together, UTI Global Bank does make a very strong brand. And, this, we believe, will be fully exploited to build an even stronger brand in UTI Global Bank.

Jawahar: You, Ramesh Gelli, are responsible for GTB's success at building a wide customer base. We see a role for you during the merger, all right. After the merger, what will be your role? Media reports say you will head the proposed new insurance venture that will be a subsidiary of the merged bank. This implies you will be out of day-to-day operations of the bank. Don't you think this will erode GTB's customer loyalty?

We are working out a detailed process of integration to ensure a smooth and efficient process.

The objective is to make sure that the issue of people is handled with care and compassion; that integration is achieved efficiently and speedily by acting with sensitivity and decisiveness; that focus on customer service is maintained. The idea is to capture the best practices among the banks.

We are, therefore, confident that there will be far fewer issues that will be thrown up. A high-level team will be constituted to address such issues, if any.

Deepak: In your interview to rediff.com, you've said: 'We've the strength to be the largest private bank in India'. What makes you so confident?

The merger takes the new entity -- UTI Global Bank -- straightaway to about Rs 200 billion in balance-sheet size. This bank has an opportunity to grow at about 50 per cent per year, which can take it to Rs 600 billion in assets in three years' time.

Meanwhile, if there are other good fits, more mergers might take place. Thus, the opportunity exists, the strengths are available, and the ambition and the desire are present. Hence the confidence, Deepak.

Bikram: Where would the combined entity focus?

Both the banks have terrific strengths in different areas. Both banks also have very huge dreams and high ambitions. What we propose to do is to jointly work out a vision for the new bank, taking into account the opportunities in the market, the strengths we possess, and the future scenario. We hope to do this within the next three months.

Venkateswara Rao: GTB was your brainchild -- you've developed it. At this juncture, don't you feel sad that your baby is being merged with UTI Bank?

Yes, Rao, it has not been an easy decision for me. But, as I look into the future, size is very critical. And, through the merger, we get a benefit of three years lead-time in achieving the size and growth. This merger provides terrific strength to the bank and makes its future more certain. Thus, while it is good for the bank, it is good for the members of the bank also.

Warrior: I am an account-holder at both GTB and UTI Bank. I find that the customer service at GTB is better. At UTI Bank, there is a lot of room for improvement. How will you get the UTI Bank to perform at GTB customer-satisfaction levels?

One of the objectives of integration is to capture the best practices of the two banks. Therefore, I believe that the best of the two banks will accrue to the new bank.

GTBian: What is the potential you foresee for your proposed insurance company?

The proposed insurance company will have the strength and support of UTI Global Bank and the Unit Trust of India. UTI, as you are aware, is a very strong player and the largest in the world, in terms of investor number.

With UTI being one of the co-promoters, the proposed insurance company can benefit from the strengths of the UTI, and therefore, has the potential to become one of the largest insurance companies. (UTI has about 50-60 million unit-holders, all potential insurance buyers).

SPS: I believe you have been assigned the task of heading the proposed insurance wing of the UTI Global Bank. Parents UTI / UTI Bank themselves have plans of making their own insurance forays. So, would this mean, there will eventually be two insurance companies in the UTI stable??

It is now agreed that the UTI Global Bank and UTI will be co-promoters of the proposed insurance company and they would not pursue two different companies.

UTIian: You have said this is a merger of equals. Dr P J Nayak has openly admitted that GTB has a superior treasury, IT, retail banking and corporate banking teams. He has also said that GTB is superior in support functions. GTB staff's confidence level is high; they are more aggressive than most UTI Bank staff. Many of us (UTI Bank employees) are nervous on how our new bosses will react. What are you going to tell your staff / our new bosses?

I believe that both the banks have unique strengths. It is decided that the merged entity will approach each issue very objectively, without bias. Every member of the organisation is a key resource for its future.

The desire would be to make each member as efficient and as productive as possible through a very positive environment and high levels of motivation. I see enthusiasm for this merger in both the banks. Thus I do not see any reason for any individual to feel diffident about his or her future.

Regarding the senior management, I believe that in both the banks, they have the maturity to integrate with different people and build new teams, and the ability to provide leadership and motivation.

Illusions: I'm curious how you intend to merge the working cultures of UTI Bank and GTB.

We have already created an integration team comprising two senior members from UTI Bank and two senior members from Global Trust Bank.

This team has identified areas in which teams have to be further created. This second rung will identify all the issues of integration in their respective areas, study the internal processes, identify the best practices and solutions and resolve the issues, if any, to be raised to the higher level which will then address these issues and find resolutions.

It has been further agreed that P S Subramanyam, chairman, UTI, Dr P J Nayak, chairman, UTI Bank, and Sridhar Subhasri, executive director, Global Trust Bank, and I would work together to ensure early completion of this integration.

Veekay: What would happen if the Indian government were to really privatise the banking companies in the public sector?

The privatisation will help the banking industry to become more efficient and competitive. In any economy, if a large sector is not as competitive as the best banks in the world, the economy stands to lose. Therefore, it will be useful for the economy and necessary for the government to go ahead with this process.

Manik: GTB is too involved in stock market activities which is not a healthy sign in a good bank. Moreover, it is associated with IT-scrip-friendly bull Ketan Parekh. What do you think would happen if KP defaults on a big scale to GTB? What liabilities would you have then?

Global Trust Bank is strong in broker finance and close to 95 per cent of its lending to brokers is to meet the pay-in-pay-out financing requirement and for DvP payments. (DvP = Delivery versus Payment.)

Since we also have the pool account and the settlement account, the risks are fully boxed. Further, for any such exposure, adequate security is taken whose value is monitored every day and shortfall insisted to be made up. Our understanding of the payment systems and comprehensive risk management systems protect us from such risks as highlighted.

Hari: Do you really believe that the GTB-UTI Bank merger will result in a better bank?

The merger would certainly produce a much stronger bank than either of the two. I am confident that the performance and the results of the combined bank will be far superior than the sum of the two. I do hope that analysts recognise this.

Ladies and gentlemen, let me thank you for your interest in the subject. I am personally convinced that this merger would prove to be a benefit for the customer, and good for the banking industry.

Any merger process is not an easy one. There will be transition issues; but more importantly, it ultimately benefits both the employees and the shareholders.

It has been a bold decision on the part of both the banks and is indeed a historic one. We fully realise that there would be people watching the developments with great interest. I seek your good wishes and support to make this a success. Thank you very much.

Exclusive interview: 'UTI Global could be the largest private bank'

Money

Interviews

Tell us what you think of this interview