SBI Merger

Government earlier this year cleared the proposal to merge SBI with its five associate banks — SBBJ, State Bank of Travancore, State Bank of Patiala, State Bank of Hyderabad — and the new Bharatiya Mahila Bank (BMB). This will add an additional Rs 8 lakh crore to SBIs assets making it a banking behemoth with total assets of Rs 30 lakh crore, an increase of about 36 per cent. 

The board of the directors approved the August 18 scheme of acquisition without any modification. Upon approval, RBI submits the scheme of acquisition as approved by it to the government of India for approval and issue of order of Acquisition under section 35 of the SBI Act 1955. 

SBI will give 28 of its shares for every 10 shares held of State Bank of Bikaner and Jaipur. It will give 22 of its shares for every 10 shares held of State Bank of Mysore. The lender will give 22 of its own shares for every 10 shares held of State Bank of Travancore. SBI will give 4,42,31,510 shares with face value of Re. 1 for every 100 crore equity shares of Bhartiya Mahila Bank. 

SBI Merger.jpg

Impact of merger

The combined entity will have 22,500 branches and 58,000 ATMs serving over 50 crore customers. . SBI has now close to 16,500 branches, including 191 foreign offices spread across 36 countries. SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged. These mergers were supposed to pay the way for an accelerated phase of consolidation involving SBI and its associates, but this has not happened. The bigger hope is that a fully amalgamated SBI will set the trend for all bank consolidation.

The merger will see SBI’s ranking approve in the Bloomberg’s largest bank by asset ranking. It may well break through the 50-mark in the ranking. SBI’s asset base will now be five times larger than the second-largest Indian bank, ICICI Bank. Post-merger the government’s stake in the bank will comes down to a little over 59.70 per cent from around 61.30 per cent as of the June quarter. 

SBI’s reach and network will multiply, efficiency will likely increase with the rationalisation of branches, there will be a common treasury pooling and there will be proper deployment of skilled resources. An enhanced scale of operations and the rationalisation of common costs will result in big savings. 

Issues

But harnessing these post-merger benefits will not be an easy task. For one, the associate banks will not come into the SBI fold with clean balance sheets; the five banks have a higher share of restructured loans than SBI, while the levels of their NPAs are comparable. There will also be common borrowers, which will bring with it its own set of problems. The books of the associates have not been subjected to the same scrutiny as SBI’s and analysts are worried that they may throw up some skeletons. SBI, itself, has declared a bad loan watch list of Rs.31,000 crore.

One of the biggest challenges for the new entity will relate to human resources issues. The problem of integrating the staff is likely to be cumbersome. Pension liabilities will also surge.

Moreover, SBI associate banks cater to specific regions, as their nomenclature indicates. Such specialisation brings with it unique insights into local customs. SBI has had a tacit agreement not to compete with its associate banks aggressively in what were seen to be the latter’s ‘operation areas’. A merger resulting in a ‘super’ SBI may not pay heed to local sensibilities that the associates have provided.

Sources:

http://thewire.in/46199/state-bank-of-india-consolidation-has-many-benefits-but-is-not-without-pitfalls/

http://economictimes.indiatimes.com/markets/stocks/news/sbi-approves-merger-with-associate-banks-8-things-you-should-know/articleshow/53756055.cms

http://economictimes.indiatimes.com/industry/banking/finance/banking/associate-banks-to-soon-submit-report-on-amalgamation-to-rbi/articleshow/54523902.cms

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