Bank of Maharashtra’s Exemplary Performance Contradicts the Move of Merger

Bank of Maharashtra (BoM) has defied expectations by registering a 34% surge in net profit during Q3 of FY23, showcasing an impressive growth trajectory. At a time when talks of disinvestment and mergers in the public sector banks (PSBs) are prevalent, BoM’s outstanding performance contradicts the narrative that advocates bank merger.

Banking experts in India and within Bank of Maharashtra view this development as highly significant, offering a compelling illustration of the smooth functioning and performance excellence exhibited by smaller Public Sector Banks .

Contradicting Merger of Banks

As we are aware, the banking landscape in India underwent a series of mergers in 2019, consolidating 10 banks into four entities. The scale of these banks stood out as a primary motivating factor. For instance, Vijaya Bank and Dena Bank were amalgamated with Bank of Baroda, forming a more substantial financial institution. Additionally, in 2017, State Bank of India, the nation's largest lender, underwent a merger with five of its associate banks.

Despite the government's argument that larger banks are more viable, Devidas Tuljapurkar, former Director of Bank of Maharashtra, highlights that BoM's regional presence and smaller size have proven advantageous. He notes that the bank's success contradicts the prevailing trend of merging small banks into larger entities.

Devidas informed Kanal, “The government and professionals have contended that the bottom line is, size matters, leading to the reduction of PSBs from 27 to 12. However, Bank of Maharashtra, a smaller-sized bank with a regional presence, has debunked this argument by excelling in nearly all parameters.”

Devidas also stated, “The decision was aimed at increasing exposure to major corporations, comprising 55% of total credit, of which 85% used to result in NPAs. The branch closures have inconvenienced customers significantly. Therefore, for all practical purposes, the merger of the banks has proven counterproductive.”

The ex-BoM director highlighted that in the merger, banks like Andhra Bank, Corporation Bank, and United Bank of India, each linked to states like Andhra Pradesh, Karnataka, and West Bengal, lost their unique history, geography, and strengths. The amalgamation resulted in the closure of over five thousand branches.

BoM Outperforms Other PSBs 

A detailed comparison of 26 crucial parameters reveals that BoM outshines other PSBs in 21 categories. These parameters include total business, CASA, net profit, operating profit, gross-net NPA, MSME advances, agriculture advances, and more.

Image: Comparison of BoM with other PSBs on Key Parameters

Among the initial nine parameters—total business, total deposit, gross advances, CASA, current position, savings deposit, RAM, retail advances, and agricultural advances—the bank secured the top position in eight, with the exception of retail advances.

Image: Comparison of BoM with other PSBs on Key Parameters

In the subsequent nine parameters, including MSME advances, Gross-Net NPA, Operating-Net Profit, Net Interest Income, Cost to Income, PCR, and NIM, the bank claimed the top spot in seven categories. It secured the third rank in net profit.

Image: Comparison of BoM with other PSBs

In the final eight parameters, Bank of Maharashtra led the rankings, outperforming other banks except in one category – yield on investments, where it secured the 10th position.

Bank of Maharashtra’s Bounce Back

Bank of Maharashtra (bank) was one of the few banks that were left out of the exercise of merger of public sector banks (PSBs) in 2019. (Ten PSBs were merged into four). The bank incurred a net loss of Rs. 4784 cr. in the financial year ended 2019.

In explaining the transformation, AS Rajeev, MD & CEO of Bank of Maharashtra, states that the bank is nearing its objective of achieving an operating profit of Rs. 500 crore per quarter for every Rs. 1 lakh crore of business.

Half a decade ago, Bank of Maharashtra, grappling with a substantial net non-performing asset ratio of 11.76% and facing capital challenges, found itself placed under the Reserve Bank of India’s prompt corrective action (PCA) framework.

Bank expert Viswanathan highlights BoM’s impressive turnaround from a net loss of Rs. 4784 crore in FY 2018-19 to a net profit of Rs. 389 crore in FY 2019-20. BoM has reported a 72% growth in business levels and a substantial six-fold increase in net profit since March 2020.

Considering merger of banks as controversial, Devidas concluded that, “Bank of Maharashtra serves as the backbone for the state of Maharashtra, boasting the widest reach in rural regions. With the highest percentage of Current Account and Savings Account (CASA). BoM contradicts the government's rationale for bank mergers. Neither customers nor the shareholders nor the employees demanded for a merger.”