BoB’s PS Jayakumar clears the air over his one-year extension, 3-way bank merger and more

In an interview with ET Now, PS Jayakumar, MD & CEO, Bank of Baroda, clears the air over his one-year extension, the three-way merger and more.

Edited excerpts:

The government has extended your tenure by one year while the street was expecting a tenure extension of three years. Would a three-year extension have been better in the light of the Bank of Baroda, Dena and Vijaya Bank merger?

To put the position in perspective, the government had given me the choice of going in for a year or two years or three years. We will move with a period of 12 months, get the process of merger done and then if there is any necessity for me to continue, then those options could continue to remain open.

The tenure was only 12 months and there was no ad-hocism. Twelve months is a commitment I could give straightaway and as we go down the time, we can always revisit these decisions.

The AIBOC challenges the decision to merge Vijaya Bank, Dena Bank and Bank of Baroda citing violation of Banking Regulation Act and the Bank Nationalisation Act. What is your take on the same?

The matter is in the court. The court should decide and a large part of the questions raised are constitutional matters. It is not specific to Bank of Baroda. It will get addressed in due course. Let us wait for the judgement to come but the matter is under the process of the court.

Since the merger announcement, your stock is down over 35%. What is the feedback that you have received from your institutional investors?

The concerns that are raised are fairly uniform. That would be the growth path we are currently in and would the transformation journey that we are currently in get distracted by the merger? Also, would there be adequate capital available for growth? Those are the two principle questions.

There has been this question around my continuity which is now been addressed. As we go down the merger process, we come with quarter two, quarter three results. Some of these concerns would get allayed and we could expect a return to a fair pricing.

Given the merger ahead, would more capital be needed towards the end of the year?

As we make the document for merger and come with a scheme, we obviously would be specifying the amount of capital that we will require. We have had some discussions and preliminary estimate of capital required shared with the government.

The government is on record saying they would provide adequate amount of capital that is required so that the combined institution would grow. The objective behind merger is about creating a stronger and better institution. In that sense, the availability of capital is also part of that approach. Frankly, that is something that will get addressed and the exact amount that we are working through will get sorted out during the course of the year.

What is the update on the merger and various timelines?

The broad timeline is that the merger process would be effective. One institution would be in place on 1st of April 2019 and between now and 1st April 2019, we have to complete a number of steps, the first of this is the stock swap ratio and then of course, the scheme of amalgamation being approved by the government and in consultation with the Reserve Bank of India and that being tabled in the parliament for 30 days.

The scheme of amalgamation would be announced. The broad timeline is we would complete the whole exercise by 31st of March 2019.

Hypothetically, we could see a merged entity to report a loss in March 2019 and if so, when will the merged entity report profits?

We are working through the numbers. 2019 and 2020 would definitely be profitable because a lot of those provisions would be taken and the capital infusion would hopefully be completed. We will start seeing some benefits on the revenue and cost sides and the synergies.

So yes, 2019-20 would be in the analysis that we have done to be profitable. The better way would be to approach this as we come with the consolidation stock swap ratio announcement. We would be able to discuss it in much more detail around the plans for the combined entity. How would that operate and what would be the three-year and a five-year perspective of that?

As a banker, how do you read the recent IL&FS situation? Would Bank of Baroda buy out more assets from NBFCs?

With regard to NBFCs, our position is it is business as usual. We will continue to keep lending subject in accordance with our usual norms, the concentration ratios etc. We are pretty much there with respect to portfolio purchases. We are also in discussion to see whether we can create programmes of co-origination. We could be lenders on records and those institutions could originate till the time they hand their liquidity issues.

For us, it is business as usual and as market opportunity presents itself, we will try to work that out. We have had discussions with the State Bank of India. They have a large plan and we are also trying to see how we can dovetail our objectives with those plans.

What about the resolution of assets? Can we expect the merged entity to come up over the next two quarters?

While the scheme of merger has been announced, I do not have access to information other than what is available in the public domain. We have to set up clean teams between these organisation who would have exclusive access to information that is not in the public domain.

The issue is not how the resolution process of the merged entity would work rather than how the resolution process of the broader NCLT will work because all banks are involved in some measure or the other. My view is that as the legal cases get settled by the Supreme Court, there would be an acceleration in the resolution of the NCLT matters and between this quarter and the next, we should see a vastly improved position.

But the extent of the resolution obviously would depend upon the quality of the assets. That broadly would be my position with respect to your question.

Original Article

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