Cabinet gets into reform mode; approves SBI, BoS merger

Nupur Acharya and Ashwin Mohan, CNBC-TV18

The Cabinet today paved the way for the merger of State Bank of Saurashtra with the parent State Bank of India. In time this will create SBI as a formidable force among banks.

After winning the trust vote and its former ally - the Left out of the way, the UPA government is now focusing on fast tracking the reform process. It's taken the first tiny steps with the Cabinet approving the merger of State Bank of India and State bank of Saurashtra.

Parliamentary Affairs Minister Priyaranjan Dasmunsi, said, "In the August of last year, SBI decided to merge the smallest among its seven associate banks - State Bank of Saurashtra with itself. It had faced opposition from the unions backed by Left parties. But now the way has been cleared for the merger."

To facilitate the merger, the government will have to repeal the State Bank of Saurashtra Act, of 1950 and amend the SBI Subsidiary Act, 1959. The next step will be to introduce the SBI Subsidiary Bank Amendment Bill, 2008.

But this is just the start. SBI has six more associate banks, which it plans to merge with itself. State Bank of Travancore, State Bank of Indore, State Bank of Hyderabad, State Bank of Bikaner & Jaipur, State Bank of Mysore and State Bank of Patiala. Which together had posted a net profit of Rs 2,277 crore.

When the merger goes through SBI will be taking over a very small associate - as on March 31, 2008, State Bank of Saurashtra had revenues of Rs 1,765 crore, net profit of Rs 52 crore and a capital adequacy of 12.71 per cent. It has total 460 branches.

SBI, which has a total balance sheet side of over Rs 5 lakh crore, if SBI is succesful in merging all seven associates, then its balance sheet size is likely to go above Rs 8 lakh crore.

However, the All India State Bank Officers Federation is also ready to protest the merger tooth and nail. The Federation will meet in Patna on Juy 31 to decide the future course of action.